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 January 31, 2002
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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: 56,237,266 shares as of January 31,
2002.
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.
LEADING-EDGE EARTH PRODUCTS, INC.
CONDENSED BALANCE SHEET
January 31, 2002
(UNAUDITED)
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ASSETS
CURRENT ASSETS:
Cash $ 1,657
Inventories 460,003
Prepaid expenses and other assets 11,845
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473,505
PROPERTY AND EQUIPMENT, NET 991,650
INTANGIBLE ASSETS, NET 161,700
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$ 1,626,855
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 391,437
Payables to related parties 776,600
Accrued contract salary payable 100,340
Accrued interest payable 102,649
Line-of-credit 38,585
Related party loans 307,432
Notes payable 22,333
Capital lease obligations, current portion 218,472
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1,957,848
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 623,927
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; 56,237,266 shares issued and
outstanding 9,807,965
Note receivable from stockholder (80,000)
Accumulated deficit (10,682,885)
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(954,920)
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$ 1,626,855
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The accompanying notes are an integral part of these condensed financial
statements.
LEADING EDGE EARTH PRODUCTS, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED JANUARY 31, 2002 AND 2001
(UNAUDITED)
Three Months Ended Nine Months Ended
January 31, January 31,
2002 2001 2002 2001
------------- ------------- ------------- -------------
REVENUES
Sales $ -- -- -- --
------------- ------------- ------------- -------------
Total Income
GROSS PROFIT -- -- -- --
OPERATING EXPENSES
Research and development -- (541) (23,728) (42,868)
General and administrative expenses (391,269) (218,710) (1,181,146) (684,782)
Idle Plant Expense -- -- -- --
Manufacturing Overhead -- (132,344) -- (352,752)
------------- ------------- ------------- -------------
Total Operating Expenses (391,269) (351,595) (1,204,874) (1,080,402)
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (391,269) (351,595) (1,204,874) (1,080,402)
OTHER INCOME/(EXPENSE)
Interest expense (33,068) (45,980) (113,021) (134,714)
Other (Gain/loss on Sale of Assets) -- -- 9,592 --
------------- ------------- ------------- -------------
Total Other Expenses (33,068) (45,980) (103,429) (134,714)
------------- ------------- ------------- -------------
(LOSS) BEFORE INCOME TAXES (424,337) (397,575) (1,308,303) (1,215,116)
PROVISION FOR INCOME TAXES -- -- -- --
------------- ------------- ------------- -------------
NET LOSS $ (424,337) $ (397,575) $ (1,308,303) $ (1,215,116)
============= ============= ============= =============
BASIC AND DILUTED LOSS PER SHARE $ (0.01) $ (0.01) $ (0.03) $ (0.03)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THE PERIOD 49,801,000 41,037,000 48,398,000 40,077,000
============= ============= ============= =============
The accompanying notes are an integral part of these condensed financial
statements.
LEADING EDGE EARTH PRODUCTS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED JANUARY 31, 2002 and 2001
(UNAUDITED)
NINE MONTHS ENDED
January 31,
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,308,303) $(1,215,117)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 232,350 153,302
Stock issued for services 551,448 -
Changes in operating assets and liabilities:
Accounts receivable - 38,186
Inventory (7,429) (283,618)
Prepaid expenses and other assets 17,287 (5,236)
Accounts payable 383,882 153,001
Accrued contract salary payable 81,667 47,000
Accrued interest payable (75,900) 45,128
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NET CASH USED IN OPERATING ACTIVITIES (124,998) (1,067,354)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (11,324) (1,012,595)
Investment (Land Sale) 74,108 -
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 62,784 (1,012,595)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on line-of-credit (926) 47,341
Proceeds from issuance of common stock 196,829 654,762
Proceeds (Payments) from loans from stockholders (191,169) 383,877
Proceeds (Payments) from related parties 161,760 -
Principal (Payments) on capital leases (119,856) 933,149
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 46,638 2,019,129
------------ ------------
NET (DECREASE) INCREASE IN CASH (15,576) (60,820)
CASH - Beginning of period 17,233 75,994
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CASH - End of period $ 1,657 $ 15,174
============ ============
The accompanying notes are an integral part of these condensed financial
statements
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",
or "the Company") an Oregon State Corporation is engaged in the development,
manufacture, and sale of its structural, lightweight, insulated, composite
component 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 Product
is especially timely in states that are banning wood in favor of non-combustible
construction materials (such as Florida), and states with new legislation
addressing energy crises (such as California). The product has also received
broad acceptance in the modular building industry because of its fast
construction cycle and high insulation factor. The Company's product is designed
to substitute for traditional wood and concrete building materials and systems
used for small building construction. LEEPCORE is manufactured in a custom
built, 30,000 square foot leased plant in Montoursville, Pennsylvania.
Administration of the Company is conducted from its headquarters in Chicago,
Illinois.
Elements of LEEPCORE are protected by two United States patents which expire in
2012 and 2016. The Company is currently seeking two additional patents with
strong multiple claims. Filings for patent protection were perfected during the
quarter in 16 foreign countries, including Japan, China, India and thirteen
European countries. Pursuant to assignment agreements, the Company has: (1) the
exclusive domestic right to use all extant LEEP product related patents,
know-how and trade secrets, patented or not, (2) non-exclusive right to use all
extant LEEP product related patents, know-how and trade-secrets, outside the
United States. 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 nine-month periods ending January 31,
2002. 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 balance of the necessary certifications
in the April/May 2002 time frame. The required ASTM E-72 structural series of
four tests is 75% complete as of the filing of this 10QSB.
The Company trades on the NASDAQ 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 nine months ended January 31, 2002 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.
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 $1.3 million for the nine months ended January 31, 2002, and has
accumulated an aggregate net loss of approximately $10.7 million as of January
31, 2002 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 is addressing these
issues with corporate alliance partners who are specialized and have expertise
in specific industry sectors where volume LeepCore orders are available from
companies whose business it is to build large quantities of buildings. By
targeting specialized LEEPCORE applications with highly qualified
partner/managers, the company plans to generate substantial sales, well defined
profit margin and operating efficiencies. The Company has received preliminary
broad acceptance within the Modular Building industry during and subsequent to
the quarter ended January 31, 2002. Beta level production capacity is in place
to support a major and immediate sales thrust into the modular building market
upon completion of the formal ASTM E-72 structural test series in the April/May
2002 timeframe.
Management intends to continue to finance its operations through private sales
of its common shares, borrowings from officers and more traditional
institutional debt and equity financing(s) until cash requirements can be met by
operations. The Company plans to concentrate on maximum utilization of the plant
manufacturing capacity in Pennsylvania. LEEP's 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 any uncertainties.
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. The 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 fiscal 2001 financial statements have
been reclassified to conform to their fiscal 2002 presentation.
NOTE 2: RELATED PARTY TRANSACTIONS
STOCK OPTIONS: No stock options were issued during the quarter ended January 31,
2002.
LOANS FROM RELATED PARTIES: On January 31, 2002, the Company owed $307,432 in
demand notes payable to stockholders with interest accruing at 8% to 18% per
annum. Also, as of January 31, 2002 $102,649 in accrued interest was owed to
officers and directors of the Company.
LINE OF CREDIT: A $50,000 line of credit has been terminated with an outstanding
balance of $38,585 at January 31, 2002 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.
OTHER: The Company has entered into agreements with a company of one of LEEP's
directors which provided financial guarantees for which the Company escrowed
1,000,000 shares of its restricted common stock, 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. The director's company made a series of
payments over the last three quarters that resulted in converting approximately
one half of the collateral shares to beneficiary ownership. Other payments made
by the guarantor to the lessor have not been converted to stock, and are carried
as loans to the director's company at January 31, 2002.
Other related party transactions are discussed elsewhere in these notes to the
unaudited condensed financial statements.
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 ongoing commitments to vendors, the building owner has allowed the
Company to miss eleven consecutive monthly lease payments. During the nine month
period ended January 31, 2002, the Company achieved major "critical path" goals
and objectives (see "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
$842,399 over their respective terms.
To keep operational continuity, LEEP's management recently offered valued
shareholder/consultants, shareholder/vendors and note holders to take larger
long-term equity positions in LEEP to 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
$0.10 per share, which approximates fair market value at October 29, 2001. The
shares will be restricted by the SEC under Rule 144. Among other restrictions
the shares cannot 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. Such conversions
can be elected through April 19, 2002, due to an extension resolution dated
March 18, 2002 providing the market prices of LEEP stock does not stabilize at a
closing price average greater than $.20 for a 10 day period prior to conversion
(see Note 5 for further information).
NOTE 4: INVENTORIES
Inventories at January 31, 2002 are summarized as follows:
Raw Materials $ 280,295
Work in Process 105,316
74,392
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Total $ 460,003
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NOTE 5: EQUITY TRANSACTIONS
During the quarter ended January 31, 2002, the Company issued 8,114,175 shares
of its restricted common stock as follows:
Shares Amount
Stock issued for cash 1,174,823 $ 125,500
Stock issued for expenses and trade payables 774,023 77,402
Stock issued for accrued salaries 3,750,214 375,021
Stock issued for accrued interest 37,500 3,750
Stock issued for principal payments on notes
payable 592,013 59,201
Stock issued for principal payments on related
party loans 1,785,602 215,160
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8,114,175 $ 856,034
============ =============
Substantially all shares issued for other than cash were issued at $0.10 per
share, as discussed in Note 3 above.
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 was maintained with a reduced staff
through the quarter just ended, while subsidizing its trained production and
assembly personnel to protect the Company's two year investment in training its
specialized work force. This procedure enables the Company to resume full time
manufacturing operations "instantly" and support an immediate market penetration
thrust by shipping immediately from the Company's stockpile of 45,000 sq. ft.
LEEPCORE inventory. The plant also completed additional experimental testing to
support the formal testing program at RADCO, Long Beach, CA, which is aimed at
obtaining building code compliances.
Due to Florida's banning wood in favor of non-combustible building materials
used for Modular Building construction, LEEP's first of four target building
code applications will favor filing to receive the new Florida Building Code
approval and the special Building Code that allows sales to Florida school
districts. Florida has created a major $600,000,000 market for which LEEPCORE's
advanced specifications make it ideally suited to take major market share in the
Florida market. This immediate market opportunity was created when the state of
Florida mandated that 17,000 existing "Relocatable" classrooms be replaced over
the next four years with new code compliant modular units. 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's timely 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, manufactured housing and
modular building manufacturers. The Company planned earlier to develop a network
of distributors and dealers to secure building orders. The earlier 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" design to market to the oil industry, military
and remote inclement weather applications. 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 and rapid deployment shelters, (pictures shown on page 9 herein). The
Company is also focused on opportunities in Florida where new 120 MPH wind codes
are now coming into effect and the use of combustible structural components
(including wood) is no longer allowed for modular building construction in the
commercial and residential sectors, in addition to the classroom market. LEEP
believes that its material and method of construction will be successful in
high-wind resistant/none-combustible building 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 structural testing is
being conducted at RADCO, a certified testing laboratory in Long Beach,
California. This test series is providing certified performance data which will
assist the Company in receiving approvals from building code agencies,
including; ICBO, SBCCI, BOCA, and IBCC, as well as Florida and California
schools. The current testing program is required before application can be made
to the various code authorities. Preliminary test results indicate the LEEPCORE
product fully meets or exceeds all desired building 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.
LEEP has retained a highly specialized consulting group to assist with
completing and implementing the design of its full-scale manufacturing plant.
The work will result in a set of drawings, specifications, equipment and vendor
lists. LEEP plans to use the documentation package to duplicate LEEP's first
full-scale production facility anywhere in the world. The Company is preparing,
based on l l/2 years of negotiations, to enter into a contract with the
industry's premier equipment purveyor to fabricate and install the equipment as
a subcontractor to LEEP to establish "turnkey" LEEPCORE manufacturing plants
worldwide.
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. The
director's company made a series of payments over the last three quarters that
resulted in converting approximately one half of the collateral shares to
beneficiary ownership. Other payments made by the guarantor to the lessor have
not been converted to stock, and are carried as loans to the company at January
31, 2002.
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 its
planned sales launch. Management is confident that shippable sales will soon be
booked against the inventory on hand, which was developed for that objective. No
assurance can be provided until customer orders are booked.
Management believes that the current series of positive structural test results,
which are certified to American Standard Testing Materials standards will
strengthen the Company's position in the industry it serves and garner
additional 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 $391,269 for quarter ended January 31, 2002 compared to
$351,595 for the comparable period in 2001. Operating expenses were $1,204,874
for the nine-month period ended January 31, 2002 compared to $1,080,419 for the
comparable period in 2001. 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
$424,337 and $0.01 respectively, for the quarter ended January 31, 2002,
compared to a net loss and net loss per share of $397,575 and $0.01,
respectively, for the comparable quarter in 2001.
PART II - OTHER INFORMATION
None
ITEM I. LEGAL PROCEEDINGS
A pending lawsuit with James Medley, which was reported earlier, was settled
prior to trial for $ 60,000 plus related costs. Mr. Medley agreed to drop all
other charges.
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.
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