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, 2001
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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.
---------------------------------
(Name of small business issuer as specified in its charter)
Oregon 93-1002429
- ---------------------------------------- ------------------------
(State of incorporation or organization) (I.R.S. Employer ID No.)
200 South Wacker Drive, Suite 4000, Chicago, Illinois, 60606
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(Address of principal executive offices) (Zip Code)
800-788-3599
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Issuer's telephone number
319 Nickerson St. #186, Seattle, WA 98109
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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: 48,824,133 shares as of November 20,
2001.
Transitional Small Business Disclosure Format (check one):
Yes...... No...X...
PART I - FINANCIAL INFORMATION
All statements, other than statements of historical fact, included in this Form
10-QSB, including the statements under "plan of operation," are, or may be
deemed to be, "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934 (the "Exchange Act"). Such
forward-looking statements involve assumptions, known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance,
or achievements expressed or implied by such statements contained in this Form
10-QSB. Such potential risks and uncertainties include, without limitation,
competitive technology advancements and other pressures from competitors,
economic conditions generally and in our research and development efforts,
availability of capital, cost of labor (foreign and domestic), cost of raw
materials, occupancy costs, and other risk factors detailed herein and in our
filings with the Securities and Exchange Commission. We assume no obligation to
update the forward-looking statements or to update the reasons actual results
could differ from those projected in such statements. Readers are cautioned not
to place undue reliance on these forward-looking statements.
Item 1. Financial Statements.
The Un-audited Condensed Financial Statements of the Company required to be
filed with this 10-QSB Quarterly Report were prepared by management and commence
on the following page, together with related Notes. In the opinion of
management, these Un-audited Condensed Financial Statements fairly present the
financial condition of the Company, but should be read in conjunction with the
Audited Financial Statements of the Company for the year ended April 30, 2001
previously filed with the Securities and Exchange Commission in Form 10-KSB.
PART I
ITEM 1. FINANCIAL STATEMENTS
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LEADING-EDGE EARTH PRODUCTS, INC.
CONDENSED BALANCE SHEET
October 31, 2001
(UNAUDITED)
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ASSETS
CURRENT ASSETS:
Cash $ 4,355
Inventories 460,003
Prepaid expenses and other assets 34,557
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498,915
PROPERTY AND EQUIPMENT, NET 1,052,825
INTANGIBLE ASSETS, NET 166,650
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$ 1,718,390
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 655,245
Payables to related parties 409,385
Accrued contract salary payable 380,415
Accrued interest payable 195,220
Line-of-credit 38,585
Related party loans 357,431
Notes payable 152,543
Capital lease obligations, current portion 218,472
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2,407,296
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 662,711
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, no par value, 10,000,000 shares
authorized; zero shares issued and outstanding -
Common stock, no par value 100,000,000 shares
authorized; 48,123,091 shares issued and
outstanding 8,986,931
Note receivable from stockholder (80,000)
Accumulated deficit (10,258,548)
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(1,351,617)
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$ 1,718,390
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The accompanying notes are an integral part of these condensed financial
statements.
2
LEADING EDGE EARTH PRODUCTS INC
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED OCTOBER 31, 2001 AND OCTOBER 31, 2000
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
October 31, October 31,
2001 2000 2001 2000
------------- ------------- ------------- -------------
REVENUES
Sales $ 0 $ 0 $ 0 $ 0
------------- ------------- ------------- -------------
Total Income
GROSS PROFIT - - - -
OPERATING EXPENSES
Research and development (1,712) (22,992) (23,728) (42,344)
General and administrative expenses (437,256) (205,527) (789,877) (466,072)
Idle Plant Expense - (117,912) - (220,408)
------------- ------------- ------------- -------------
Total Operating Expenses (438,968) (346,431) (813,605) (728,824)
------------- ------------- ------------- -------------
PROFIT (LOSS) FROM OPERATIONS (438,968) (346,431) (813,605) (728,824)
OTHER INCOME/EXPENSE
Interest expense (39,552) (56,108) (79,953) (88,734)
Other (Gain/loss on Sale of Assets) - 3 9,592 17
------------- ------------- ------------- -------------
Total Other Expenses (39,552) (56,105) (70,361) (88,717)
------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAXES (478,520) (402,536) (883,966) (817,541)
PROVISION FOR INCOME TAXES - - - -
------------- ------------- ------------- -------------
NET LOSS $ (478,520) $ (402,536) $ (883,966) $ (817,541)
============= ============= ============= =============
BASIC AND DILUTED LOSS PER SHARE $ (0.01) $ (0.01) $ (0.02) $ (0.02)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THE PERIOD 47,869,000 39,929,863 47,718,000 39,163,007
============= ============= ============= =============
The accompanying notes are an integral part of these condensed financial statements.
3
LEADING EDGE EARTH PRODUCTS INC
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED OCTOBER 31, 2001 AND OCTOBER 31, 2000
(UNAUDITED)
SIX MONTHS ENDED
October 31,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (883,966) $ (817,541)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 154,900 100,957
Stock issued for services 141,652 -
Changes in operating assets and liabilities:
Accounts receivable - 38,186
Inventory (7,429) (264,342)
Prepaid expenses and other assets (5,425) 5,236
Accounts payable 280,474 242,083
Accrued contract salary payable 76,000 41,000
Accrued interest payable 16,671 31,298
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NET CASH USED IN OPERATING ACTIVITIES (227,123) (623,123)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment - (1,011,391)
Investment (Land Sale) 74,108 -
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 74,108 (1,011,391)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on line-of-credit (926) 48,036
Proceeds from issuance of common stock 71,331 200,475
Proceeds from loans from stockholders - 308,877
Proceeds/Payments from related parties 150,804 100,000
Principal payments on capital leases (81,072) 907,955
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NET CASH PROVIDED BY FINANCING ACTIVITIES 140,137 1,565,343
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NET (DECREASE) INCREASE IN CASH (12,878) (69,171)
CASH - Beginning of period 17,233 75,994
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CASH - End of period $ 4,355 $ 6,823
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4
October 31, 2001
Notes to Condensed Financial Statements
Note 1. ORGANIZATION, SIGNIFICANT ACCOUNTING POLICIES, AND BASIS OF PRESENTATION
Organization and Nature of Business: Leading-Edge Earth Products, Inc., (LEEP),
an Oregon State Corporation, is engaged in the development, manufacture, and
sale of its structural, lightweight, insulated, composite component, component,
which is known as, "LEEP STRUCTURAL CORE"(R), ("LEEPCORE")(R). The product is
designed to support building construction of LEEPCORE Frameless walls and very
strong LEEPCORE floors and roofs. The LEEPCORE component is a 3-way structural
member used to construct residential and non-residential buildings. The
Company's product is designed to substitute for traditional wood and concrete
building materials and systems. LEEPCORE is manufactured in a custom build,
leased 30,000 square foot plant in Montoursville, Pennsylvania. Administration
of the Company is conducted from its headquarters in Chicago, Illinois.
LEEPCORE is protected by several United States patents which expire in 2012 and
2016. The Company is currently in the process of seeking two additional patents
with strong multiple claims and worldwide patent protection for its proprietary
component and building system. Pursuant to assignment agreements, the Company
has: (1) the exclusive domestic right to use all extant LEEP product related
patents, (2) non-exclusive right to use all extant LEEP product related
trade-secret, patents outside the United States, and(3) the right to use all
extant LEEP product related non-patented proprietary and all other related
technology. The duration of such agreements is generally equal to or greater
than the remaining legal life of the related patents.
The Company had no sales for the three- or six-month periods ended October 31,
2001. Management attributes this to the reluctance of potential customers to
incorporate a component product in their building design that has not yet
received the testing certifications necessary to qualify for building code
approvals and thus facilitate receiving building permits. The Company has
initiated a series of supervised tests by a nationally recognized testing
organization, and expects to receive the necessary certifications during the
year ending April 30, 2002.
The Company trades on the Over The Counter Bulletin Board under the trading
symbol "LEEP".
BASIS OF PRESENTATION: The accompanying unaudited condensed financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for the interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three and six months ended October 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending April 30,
2002. For further information refer to the Company's Annual Report on Form
10-KSB for the year ended April 30, 2001, which includes audited financial
statements.
USE OF ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States, 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.
INVENTORY: Inventory is stated at the lower of cost (using FIFO) or estimated
market value.
NET LOSS PER COMMON SHARE: Loss per common share is based on the weighted
average number of common shares and potential common shares outstanding during
the period in accordance with Statement of Financial Accounting Standards No.
128, "EARNINGS PER SHARE". Securities that could potentially dilute basic loss
per share in the future were not included in the diluted-loss-per-share
computation because their effect is antidilutive.
5
STOCK-BASED COMPENSATION: There was no stock-based compensation during the
quarter ended October 31,2001. During the quarter ended October 31, 2001, the
company issued 2,053,161 shares of restricted common stock for $294,652 for
cash or cash equivalent services rendered and debt conversion to equity.
LIQUIDITY ISSUES: The Company's ability to continue as a going concern is
dependent upon its success in transforming its building panel technology and
manufacturing capability into a profitable operation and obtaining additional
financing commensurate with operating activities. The Company has a net loss of
approximately $884,000 for the six months ended October 31, 2001, and has
accumulated an aggregate net loss of approximately $10 million as of October 31,
2001 due largely to R&D, production start up and corporate operating expenses
since 1992. These conditions raise substantial doubt about the ability of the
Company to continue as an going concern. Management plans to address these
issues with joint venture partners who are specialized and have expertise in
specific industry sectors and/or regions where LEEPCORE is advantageous. By
targeting specialized LEEPCORE applications with highly qualified
partner/managers, the company plans to generate sales, and improve profit
margins and operating efficiencies. Beta level production capacity is in place
to support a major thrust in sales and marketing program.
Management intends to continue to finance its operations through private sales
of its common shares, borrowings from officers and more traditional
institutional debt financing until cash requirements can be met by operations.
The Company plans to concentrate on maximum utilization of the plant
manufacturing capacity in Pennsylvania. The strategy is to use its current beta
level manufacturing capability to support large-volume customer needs until an
automated plant can be financed and operational. The accompanying financial
statements have been prepared on the basis that the Company will be able to
continue as an on-going concern. These financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
RECENT ACCOUNTING PRONOUNCEMENTS: For the year ended April 30, 2002, the Company
has adopted the Statement of Financial Accounting Standards No. 133, "ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS 133"), as amended.
Management does not believe that the Company engages in any of the activities
described under SFAS 133. T12/20/01 he company experienced no impact to the
Company's financial position or results of operations from adopting this
standard.
In July 2001, the Financial Accounting Standards Board issued Statements No.
141, "Business Combinations" ("SFAS 141") and No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 141 supersedes APB Opinion No. 16,
"Business Combinations" and SFAS No. 38, "Accounting for Pre-acquisition
Contingencies of Purchased Enterprises". SFAS 141 is effective for fiscal years
beginning after June 30, 2001 and requires that all business combinations be
accounted for by the purchase method. SFAS 142 supersedes APB Opinion No. 17,
"Intangible Assets". SFAS 142 is effective for fiscal years beginning after
December 15, 2001 and provides that all existing and newly acquired goodwill and
intangible assets will no longer be amortized but will be tested for impairment
annually and written down only when impaired. Management does not believe that
the requirements of such pronouncements will have a significant impact on the
Company's future financial statements.
Additionally, the Financial Accounting Standards Board has recently issued
Statements No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143")
and No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS 144"). SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs, and is effective for financial statements
issued for fiscal years beginning after June 15, 2002. SFAS 144 supersedes
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", and addresses financial accounting and
reporting for the impairment or disposal of long-lived assets, including
accounting for a segment of a business accounted for as a discontinued
operation. SFAS 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001. Management has not determined exactly
how the requirements of such pronouncements will affect the Company's future
financial statements.
RECLASSIFICATIONS: Certain amounts in the 2000 financial statements have been
reclassified to conform to their 2001 presentation.
6
Note 2: RELATED PARTY TRANSACTIONS
STOCK OPTIONS: No stock options were issued during the quarter ended October 31,
2001.
LOANS FROM RELATED PARTIES: On October 31, 2001, the Company owed $357,431 in
unsecured, demand notes payable to stockholders with interest accruing at 8% or
10% per annum. Also, as of October 31, 2001, $178,128 in accrued interest was
owed to officers and directors of the Company.
In addition to the above loans, the Company borrowed $76,762 under a note
payable dated October 29, 2001 from Brown Marketing Communications, LLC, a
related party (see below). Interest accrues at 18% per annum. Principal and
interest are due on December 31, 2001. Such loan is secured by 563,280 shares of
the Company's restricted common stock. Also, Brown Marketing Communications, LLC
advanced the Company approximately $13,000 during the quarter ended October 31,
2001. Such advances accrue no interest and are due on demand.
LINE OF CREDIT: A $50,000 line of credit has been terminated with an outstanding
balance of $38,585 at October 31, 2001 on which the Company is continuing to
make regular monthly payments. The Company's CEO personally guarantees this line
of credit.
OFFICE SPACE: The Company subleases approximately 1,000 square feet of office
space for its Corporate Headquarters from Brown Marketing Communications, LLP,
at 200 South Wacker Drive, Suite 4000, Chicago, Illinois. The Chairman of the
Board, Dennis Schrage, is a principal and President of Brown Marketing
Communications, LLP. The terms of the month-to-month sublease are at least as
favorable as other similar space in downtown Chicago, and lease payments have
been deferred until the cash flow of the Company permits lease payments to be
made.
Note 3: COMMITMENTS AND CONTINGENCIES
The Company is obligated to a Manufacturing Space Lease in the amount of $11,412
per month. This two year Lease is renewable in May 2002 at a reduced rate of
$9,375 per month. Owing to a series of failed financing commitments and the
Company's corresponding commitments to vendors, the building owner has allowed
the Company to miss eight consecutive monthly lease payments. During the eight
month period, the Company achieved major "critical path" goals and objectives
(see Plan of Operation in "Plan of Operations". The Company will be required to
finance the payment of overdue lease payments in order to keep operational
continuity.
The Company is obligated for capital leases in the amount of $28,000 per month.
These leases expire in 20 to 40 months and represent a total obligation of
$881,183 over their respective terms.
The current portion of leases payable is $218,472.
To encourage management, valued shareholder/consultants, shareholder/vendors and
note holders to take larger long-term equity positions in LEEP and assist the
company in improving its Balance Sheet debt and other liabilities, the
directors, on October 29, 2001, passed a unanimous Resolution encouraging the
subject categories of companies and people to convert existing liabilities to
LEEP stock. The conversion rate is $.10 per share. The shares will be restricted
by the SEC under Rule 144. Among other restrictions the shares can not be sold
prior to holding for one year. In the case of management, directors, related
parties and control person, the restrictive legends can not be removed except in
accordance with Rule 144 requirements for insiders selling after one year
holding periods. Such conversions can be elected through January 5, 2002
providing the market prices of LEEP stock does not stabilize at a price (bid/ask
average) greater then $.20 for a 10 day period prior to conversion.
Note 4: INVENTORIES
Inventories at October 31, 2001 are summarized as follows:
Raw Materials $ 280,295
Work in Process 105,316
Finished Goods` 74,392
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Total $ 460,003
7
PART 1 - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LEADING-EDGE EARTH PRODUCTS, INC.
PLAN OF OPERATION: LEEP's manufacturing plant is located in a customized 33,000
square foot building where the company operates with a 100-foot long three-stage
rollforming system, three semi-automatic production presses and an automated,
computer controlled foam generation system. This current complement of equipment
is capable of producing 50,000 sq ft of LEEPCORE panels per month. Present
facilities allow for three additional presses at an additional cost of $375,000,
which would give the Pennsylvania plant the ability to produce 110,000 square
feet of LEEPCORE panels per month. The plant operated part time through the
quarter just ended, as the company reached a stockpile level of 45,000 sq. ft.
LEEPCORE inventory during the previous period to support future sales. The
plant also completed additional experimental testing to support the formal
testing program at RADCO, Long Beach, CA, which is aimed at obtaining ICBO
building code compliance. The Company plans to resume full-time operation as of
receipt of anticipated orders and funding. Source(s) for such funding are
identified. Management is confident and working diligently toward its funding
objective. Public low valuation of LEEP stock tends to work in favor of larger
investor involvement.
The LEEPCORE product is typically factory-configured in large Sections to
support construction of structural walls, roofs and floors. The Company's target
market is high-volume users such as large builders, developers, contractors,
manufactured housing and modular building manufacturers. The Company planned
earlier to develop a network of distributors and dealers to secure building
orders. The planned distributor network approach has been abandoned as
nonfunctional as this level of direct sales is inconsistent with the company's
staffing, organization and primary objective of seeking high-volume LEEPCORE
component sales.
The Company designed and constructed a 3 x 3 x 9 meter (10' x 10' x 30')
"Modular Accommodation Building" as a representative building to market to the
oil industry, military, school districts and as a sample for the modular
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, classrooms, barracks, rapid deployment shelters,
remote location personnel, etc. LEEP has been pursuing a contract to supply the
US Army with Rapid Deployment Shelters. It is unknown at this time as to the
eventual outcome. The Company is exploring opportunities in Florida where new
120 MPH wind codes are now coming into effect and the use of structural
combustible components (including wood) is no longer allowed for all Public and
all Modular building construction. LEEP believes that its material and method of
construction will be successful in high-wind resistant/none-combustible designs
for Florida and other gulf coast markets. The company received independent test
results from Clemson University on January 18, 2001, Which stated that the
Company's LEEPCORE panel passed the Windborne Debris Impact Test at 234% of the
Dade County, Florida building code minimum requirement. Formal LEEPCORE product
testing is being conducted at RADCO, a specialized and certified testing
laboratory in Long Beach, California, where it expects to be testing for several
more months. This test series is being conducted to provide certified
performance data which will enable the Company to receive approvals from all the
major building code agencies, including; ICBO, SBCCI, BOCA, and IBCC. The
current testing program is required before application can be made to the code
authorities. Preliminary test results indicate the LEEPCORE product fully meets
and/or exceeds the ICBO and other desired Code requirements.
LEEP's primary focus for fiscal 2002 is to manufacture, market and position to
sell its LEEP STRUCTURAL CORE product (LEEPCORE) to markets which have large
volume requirements for structural building components that are compatible with
LEEP's mass-production technology. LEEP's strategy is to establish markets and
build sales backlog to justify funding and construction of a full-scale,
highly-automated manufacturing plant capable of producing 100,000 square feet of
LEEPCORE product per day (25 million sq ft per annum). The Company plans to
employ approximately 200 people per plant and operate at a production level that
supports cost effective manufacturing that allows LEEP to compete successfully
in the broad market(s). LEEP's focus is to use the production capacity of the
Pennsylvania plant, on an interim basis, to meet the demands of sales sufficient
to justify funding and construction of LEEP's planned full-scale production
plant. Financial commitments are not in place at this time for the full-scale
plant funding.
8
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 plans 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. Management and Board members
have identified and are in discussions with prospective qualified investors with
the aim of obtaining capital for LEEP's short to long-term cash needs. LEEP does
not have any revenue beyond its first sale of a two story office building in
Houston, does not have orders for its product, and does not have assets that can
be liquidated to cover all of its liabilities.
During fiscal year 2000, 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 lease payments of approximately
$23,000 to pay for the machines. With the help of a director, LEEP was able to
order 400,000 pounds of steel, a large portion of which is now on hand to be
used in the production of LEEPCORE panels. 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 director's companies which provided financial guarantees for which LEEP
escrowed 1,000,000 shares of Rule 144 restricted common stock in the director's
company name to be issued to the director's company in the event of default by
LEEP that results in the director's company being required to make payments.
$18,776 was converted to 187,764 common shares, as the guarantor made 1 payment
to the lessor during the quarter ended October 31, 2001. Other payment made by
the guarantor to the lessor have not been converted to stock., and are carried
as loans to the company at October 31, 2001.
LEEP's approximate cost of maintaining status quo manufacturing operations on a
"demand basis" is approximately $50,000 per month. With no revenue from
operations, LEEP plans to continue borrowing money and selling its common stock
to fund its corporate overhead and maintain corporate operations and
manufacturing operations at the lowest "ready" level. There can be no assurance
that the Company will be successful. Current liabilities have increased
substantially over the past fiscal quarters, and financing is not in place to
cover these increases.
RESULTS OF OPERATIONS: LEEP maintained full-time production operations until
it accumulated a 45,000 sq. ft. LEEPCORE panel inventory in order to support
future sales. No sales are currently pending, however management is confident
that shippable sales will soon be booked against the inventory on hand,
which was developed for that objective. No guarantees can be provided until
customer orders are booked.
Management believes that the series of positive structural test results;
certification to ASTM standards; and receipt of National and International
building code approvals will progressively strengthen the Company's position in
the industry it serves and garner progressively more sales and financial
support.
The company is leasing office space from Brown Marketing Communication, LLP,
at a rental rate that is at least as favorable as similar space in the Chicago
business district Loop. Accrued payments will be paid as cash flow permits.
Operating expenses were $438,968 for quarter ended October 31, 2001 compared to
$346,431 for the comparable period in 2000, while operating expenses were
$813,605 for the six-month period ended October 31, 2001 compared to $728,824
for the comparable period in 2000. The increase was primarily due to cost of
product testing to obtain national and international building code
certifications.
The Company experienced a net loss and corresponding net loss per share of
$478,520 and $0.01, respectively, for quarter ended October 31, 2001, compared
to a net loss and net loss per share of $402,536 and $0.01, respectively, for
the comparable quarter in 2000. The net loss and net loss per share information
for the six-month period ending October 31, 2001 was $883,966 and $0.02 compared
to a net loss and net loss per share for the same period of 2000 of $817,541 and
$0.01.
9
PART II OTHER INFORMATION
- -------------------------
In conjunction with preparations for pending financing, the company will be
required to make full disclosure regarding: SEC timely filings, SEC report
currency, and history. The company is reporting that it did not obtain auditor
reviews of SEC filings required by SAS 71, for the quarters ending January 31,
2001 and July 31, 2001. The Company was audited for the year ended 4/30/01 and
auditor reviewed for the quarter ending October 31, 2001. As a result of the
annual audit for the year ending April 30, 2001 and the auditor review of
quarter ending October 31, 2001, both of which included review of former
periods, the company is electing to not file amended 10 QSB reports to the SEC
for the subject two quarters. This fact is hereby disclosed to shareholders,
prospective financers, Prospective investors, and the SEC.
ITEM I. LEGAL PROCEEDINGS
- --------------------------
On November 19, 2001, James R. Medley commenced suit against the Company in King
County Superior Court, State of Washington. The suit claims that plaintiff was
wrongfully discharged, that he has not been paid in full for his services, and
that his reputation has been damaged. The suit seeks compensatory damages of
$49,382, plus an unspecified amount for damage to reputation, and exemplary
damages and attorneys fees. The Company believes it has meritorious defenses to
the suit and intends to defend itself vigorously.
The risk of legal actions is inherent, as enumerated in the Risk section of the
Company's 10-KSB report for fiscal year ending April 30, 2001.
10
ITEM 2. CHANGES IN SECURITIES
- ------------------------------
There have been no changes in instruments defining the rights of holders of any
class of securities.
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 Chicago on April 28, 2001. Business transacted at that meeting
was summarized in LEEP's 10-KSB report filed on August 14, 2001
ITEM 5. OTHER INFORMATION
- -------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
None
FINANCIAL STATEMENTS
- --------------------
None
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, 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 26, 2001
/s/ GRANT C. RECORD /s/ Dennis Schrage
- ------------------------ ------------------------------
Grant C. Record Director and Chairman of the Board
CEO and Secretary
11