U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-QSB
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT
For the transition period from _____________ to _______________
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Commission File Number 0-22169
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SOY ENVIRONMENTAL PRODUCTS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 48-1192445
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9135 Barton Street
Overland Park, Kansas 66214
(Address of principal executive offices)
(913) 599-0800
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) 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
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The number of shares outstanding of each of the issuer's classes of
common equity was 4,980,400 shares of common stock, par value $.001, as of June
30, 1997.
Transitional Small Business Disclosure Format (check one):
Yes No X
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SOY ENVIRONMENTAL PRODUCTS, INC.
INDEX TO FORM 10-QSB FILING
FOR THE QUARTER ENDED JUNE 30, 1997
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TABLE OF CONTENTS PAGE NUMBER
PART I
FINANCIAL INFORMATION
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Item 1. Financial Statement........................................................................ 3
Consolidated Balance Sheet
June 30, 1997 (unaudited)................................................ 3
Consolidated Statements of Operations
Three Months and Nine Months Ended June 30, 1997 (unaudited)............. 4
Consolidated Statement of Cash Flows
Nine Months Ended June 30, 1997 (unaudited).............................. 5
Notes to Consolidated Financial Statements........................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................. 9
PART II.
OTHER INFORMATION
None................................................................................................ 10
SIGNATURES
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOY ENVIRONMENTAL PRODUCTS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
ASSETS
Current Assets:
Cash $ 33,362
Accounts Receivable 16,076
Inventory 15,647
---------
Total Current Assets 65,085
Furniture and Equipment 4,748
Investment (Note 5) 190,000
Organization costs, net (Note 1) 7,537
Licenses 5,000
---------
Total Assets $ 272,370
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable (Note 5) $ 66,800
Accrued Expenses 69,028
Notes Payable 150,000
---------
Total Current Liabilities 285,828
---------
Commitments (Note 9)
Stockholders' Equity:
Common Stock, $.001 Par Value, 20,000,000 Shares
Authorized, 4,980,400 Shares Issued and Outstanding 4,980
Additional Paid in Capital 412,562
Accumulated Deficit (431,000)
---------
Total Stockholders' Equity (13,458)
---------
Total Liabilities and Stockholders' Equity $ 272,370
=========
The Accompanying Notes are an Integral Part
of the Financial Statements
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<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended Ended
June 30, 1997 June 30, 1997
============= =============
Sales $ 23,991 $ 32,170
Cost of Sales 17,262 21,168
------------- -------------
Gross Profit 6,729 11,002
General and Administrative Expenses 179,712 377,466
------------- -------------
Loss from Operations (172,983) (366,464)
Miscellaneous Income 126 371
------------- -------------
Net Loss $ (172,837) $ (366,093)
============= =============
Loss Per Share (Note 1) (.03) (.07)
============= =============
Weighted Average Shares Outstanding 4,980,400 4,980,400
============= =============
The Accompanying Notes are an Integral Part
of the Financial Statements
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CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Month Period Ended June 30, 1997
(Unaudited)
Reconciliation of Net Loss to Net Cash
Provided by Operating Activities:
Net Loss $(366,093)
---------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization 1,330
Changes in Assets and Liabilities:
Accounts receivable (12,726)
Inventory (15,647)
Deposit 5,003
Accounts payable 66,760
Accrued expenses 69,028
---------
113,748
---------
Net cash used by operating activities (252,345)
---------
Cash flows for investing activities:
Increase in furniture and equipment (4,748)
Increase in investment (40,000)
Increase in organization costs (8,867)
---------
Net cash used by investing activities (53,615)
Cash flows from financing activities:
Proceeds from issuance of stock 164,642
Proceeds from notes payable 150,000
---------
Net cash provided by financing activities 314,642
---------
Net increase in cash 8,682
Cash at the beginning of period 24,680
---------
Cash at end of period $ 33,362
=========
The Accompanying Notes are an Integral Part
of the Financial Statements
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND NATURE OF OPERATIONS:
Nature of Corporation. Soy Environmental Products, Inc. and Subsidiary
(formerly Denom Acquisition Corp.) (the "Company") was organized under the laws
of the State of Delaware on January 10, 1996. The Company was in development
stage and had no activity from its inception through October 21, 1996. On
October 21, 1996, the Company acquired Delta Environmental, Inc., through which
all operations are conducted. See Note 2 below. On November 14, 1996, the
Company changed its name from Denom Acquisition Corp. to Soy Environmental
Products, Inc. The principal business purpose of the Company is to engage in the
development of, ownership of interests in, and operation of facilities that
produce biodegradable chemical products, and to establish national sales and
distribution networks for these products.
Principles of Consolidation. The consolidated financial statements of
the Company include the accounts of Soy Environmental Products, Inc. and its
wholly-owned subsidiary, Delta Environmental Inc. All significant inter-company
balances and transactions have been eliminated in consolidation.
Revenue Recognition. Revenues are recognized on the accrual basis of
accounting with revenue from product sales recognized at the time of shipment.
Organization Costs. Organization costs consist of costs incurred prior
to commencing operations. These costs consist primarily of professional fees and
administrative costs, and are amortized ratably over a five year period. For the
nine month period ended June 30, 1997, amortization expense in the amount of
$1,330 was charged to operations.
Interim Financial Information. The interim financial statements for the
nine month period ended June 30, 1997 are unaudited. In the opinion of
management, such statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the results of the
interim period. The results of operations for the nine month period ended June
30, 1997 are not necessarily indicative of the results for the year ending
September 30, 1997. No financial statements for the three and nine month periods
ended June 30, 1996 are presented for comparative purposes because no
significant operations occurred in these periods.
Loss Per Common Share. The computation of loss per common share is
based on the net loss attributable to common stockholders and the weighted
average number of common shares outstanding for the period. Common share
equivalents are not included, as they are anti-dilutive in the calculation of
loss per share.
2. REVERSE ACQUISITION:
On September 3, 1996, the Company entered into an agreement to purchase
all of the outstanding common stock of Delta Environmental, Inc. The acquisition
was effective as of October 21, 1996. The acquisition of Delta Environmental,
Inc. was accounted for using the purchase method of accounting and as a reverse
merger since the stockholders of Delta Environmental, Inc. received
approximately 90% of the outstanding common stock of Soy Environmental Products,
Inc. In addition, pursuant to the merger agreement, 3,030,500 shares transferred
in the merger were specifically excluded from the reverse stock split. See Note
12 below.
3. PERVASIVENESS 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.
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4. RELATED PARTY TRANSACTIONS:
Leasing Arrangements. The Company leases office space under a
month-to-month operating lease agreement with a related entity. For the three
and nine month period ended June 30, 1997, rental expense for the office lease
was $10,694 and $35,202, respectively.
5. INVESTMENT
The investment consists of an approximate 25% ownership interest in
Interwest, L.L.C., an Iowa limited liability company, which owns a facility that
will produce products for the Company. The investment will be accounted for
under the equity method, however, as of June 30, 1997, no material activity had
occurred with respect to the facility.
6. STATEMENT OF CASH FLOWS:
Non-Cash Financing Activities. For the nine month period ended June 30,
1997, the Company recognized financing activities that affected stockholders'
equity, but did not result in cash receipts.
As of June 30, 1997, these non-cash activities consisted of the
following:
Reverse acquisition of Delta Environmental, Inc.'s net assets
in exchange for 3,760,600 shares of the Company's restricted
common stock.
7. ECONOMIC DEPENDENCY:
The Company purchases substantially all of its supply methyl esters
from Interwest Cooperative, a non-related entity.
8. COMPENSATION FROM OPTIONS:
The Company has issued stock options pursuant to an employment
agreement. The options are exercisable at $.33 per share for a period of five
years from the grant date. At June 30, 1997, there were 500,000 options granted
with no options exercised.
The stock options issued to the employees have an exercise price not
less than the fair market value of the Company's common stock on the date of
grant. In accordance with accounting for such options utilizing the intrinsic
value method, there is no related compensation expense recorded in the Company's
financial statements. Had compensation cost for stock-based compensation been
determined based on fair market value at the grant date consistent with the
method of SFAS 123, the Company's net loss and loss per share for the nine month
period ended June 30, 1997, would have been reduced to the pro forma amounts
presented below:
Net loss
As reported $366,093
Pro forma $436,093
Loss per share
As reported $ .07
Pro forma $ .08
The fair value of option grants is estimated as of the date of grant
utilizing the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1997: expected life - two years, risk-free
interest rates of eight percent and a zero percent dividend yield.
9. COMMITMENTS:
License Agreement. On September 15, 1996, Delta Environmental, Inc.
entered into a licensing agreement with Interchem Environmental, Inc. for sales
of various Interchem Environmental, Inc. products. The contract provides for
royalties at a rate of one-
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half of one percent of gross sales. In exchange for the licensing agreement,
Interchem Environmental, Inc. received 500,000 shares of Company common stock.
10. NOTE PAYABLE:
As of June 30, 1997, the note payable consists of a 90-day promissory
note payable to two individuals with interest at the rate of nine percent per
annum, unsecured.
11. SUBSEQUENT EVENT:
Subsequent to the balance sheet date, the Company commenced a private
placement pursuant to Regulation D promulgated by the Securities and Exchange
Commission. The Company is offering for sale 15 units consisting of $60,000
Senior Convertible Notes and 60,000 three year warrants to purchase common stock
at an exercise price of $1.00 per share. Each $60,000 Senior Convertible Note is
convertible into 60,000 shares of common stock.
12. REVERSE STOCK SPLIT:
On November 8, 1996, the Company's Board of Directors authorized a
one-for-six reverse split of the shares of the Company's common stock. As a
result of the reverse split 4,621,500 shares were outstanding as of November 8,
1996.
13. PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS:
The following unaudited Proforma Condensed Consolidated Statement of
Operations of Soy Environmental Products, Inc. gives effect to the reverse
merger with Delta Environmental, Inc. as though such merger had occurred as of
October 1, 1996. This proforma information has been prepared based on the
estimates and assumptions set forth herein and in the notes to such statements.
The unaudited Proforma Condensed Consolidated Statement of Operations do not
purport to be indicative of the results which actually would have been obtained
had the purchase been effected on October 1, 1996, or of the results which may
be obtained in the future.
The unaudited Proforma Condensed Consolidated Statement of Operations
is based on the purchase method of accounting and treated as a reverse merger.
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Month Period Ended June 30, 1997
(Unaudited)
Historical Proforma
Historical Soy Delta(1) Consolidated
-------------- -------- ------------
Sales $ 32,170 -- $ 32,170
Cost of Sales 21,168 -- 21,168
Gross Profit 11,602 -- 11,602
General and Administrative
Expenses 377,466 29,181 (406,647)
--------- --------- ---------
Loss from Operations (366,464) (29,181) (395,645)
Miscellaneous Income 371 -- 371
Net Loss $(366,093) $ (29,181) $(395,274)
========= ========= =========
(1) Represents the operations of Delta Environmental, Inc. for the period from
October 1, 1996 through October 21, 1996, the date of the reverse merger.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the results of operations and financial
condition should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this Form 10-QSB. Prior to October 21, 1996, the
Company had no operating history. Subsequent to October 21, 1996 all of the
Company's operations are being carried out by its wholly owned subsidiary Delta
Environmental, Inc. ("DEI"). Therefore, all discussions below concerning the
Company prior to the acquisition of DEI relate to and reflect the operations of
DEI only.
RESULTS OF OPERATIONS
The Company was a development stage company at June 30, 1997, with
nominal revenues generated for the three and nine month periods then ended.
Additionally, prior to October 21, 1996, the date DEI was acquired, no activity
had occurred with respect to the Company resulting in no prior year's operations
to compare to the Company's current operations.
For the nine month period ended June 30, 1997, the Company had sales of
$32,170 with cost of sales equal to $21,168 resulting in a gross profit of
$11,002. Cost of sales as a percentage of sales was 65.80% for this period.
General and administrative expenses were $377,466 for the nine months ended June
30, 1997 which resulted in a loss from operations of $366,093 for the period or
$(.07) per share.
For the three month period ended June 30, 1997, the Company had sales
of $23,991 with cost of sales equal to $17,262 resulting in a gross profit of
$6,729. Cost of sales as a percentage of sales was 71.95% for this period.
General and administrative expenses were $179,712 for the three months ended
June 30, 1997 which resulted in a loss from operations of $172,983 for the
period or $(.03) per share.
The Company anticipates that its operating expenses will be increasing
so that the Company's future profitability will depend upon significant
increases in revenue from operations. While the Company believes that sales
revenue will increase due to the Company's marketing activities and distribution
agreements recently entered into, there can be no assurance as to the amount of
income which the Company may be able to generate from distributions and sales
operations. Losses have primarily resulted from high start-up and general
administrative costs compared to the Company's initial low sales volume. Given
the Company's financial resources, its anticipated expenses and the highly
competitive environment in which it will operate, there can be no assurance that
the Company will be able to generate sufficient revenue to fund its current or
future operations or that the Company's future operations will be profitable in
the near future or at all.
LIQUIDITY AND CAPITAL RESOURCES
From the date of formation to the date of the acquisition of DEI, the
Company had no revenues or operating income. For the nine month period ended
June 30, 1997, the Company had nominal revenues of $32,170, primarily from sales
of samples and trial products. As of the date of acquisition of DEI, the Company
had no tangible assets. As a result of the acquisition of DEI on September 30,
1996, the Company had total assets of $181,515 and total stockholders' equity of
$124,774 compared to $272,370 and $(13,458), respectively, as of June 30, 1997.
As of September 30, 1996, the Company had current assets of $21,512 in the form
of cash and current liabilities of $56,799. At June 30, 1997, the Company had
current assets of $65,085, comprised of $33,362 cash, $16,076 accounts
receivable and $15,647 inventory, and current liabilities of $285,828.
Since inception, the Company's working capital needs have been
satisfied by financing activities primarily consisting of the private placement
of common stock and debt. The Company is currently privately placing discounted
notes with a total face amount of $900,000. As of September 9, 1997, $325,000
face amount of such notes had been sold resulting in net proceeds to the Company
of $263,855. The Company anticipates meeting its working capital needs during
the current fiscal year primarily with proceeds from the sale of securities and
secondarily with revenues from sales and distribution operations, if any. The
Company believes that it will require substantial additional funds to cover the
costs of manufacturing its products, general and administrative overhead,
meeting its reporting obligations under the Securities Exchange Act, and in
order to effect the acquisition of any entity or asset the Board of Directors
deems necessary for the growth or well being of the Company. If such funds are
necessary, the Company will seek to borrow such funds and/or raise such funds
through the private or public sale of its common stock or other securities. No
assurances can be given that such financing, if required, will be available, or
that it can be obtained on terms satisfactory to the Company. In the opinion of
management, inflation has not had a material affect on the operations of the
Company.
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During the next 12 months, the Company anticipates that it will
establish a manufacturer's representative organization to represent the
Company's products throughout the U.S. as well as internationally. The
organization will be responsible for contacting and developing target markets as
determined by the Company's segments involving large hardware/home center retail
chains and the light industrial and automotive users. Management believes that
the proceeds from its financing activities as currently anticipated will be
sufficient to provide for the Company's planned expansion of its marketing,
distribution and sales activities.
PART II. OTHER INFORMATION
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed by the undersigned, thereunto duly authorized.
SOY ENVIRONMENTAL PRODUCTS, INC.
(Registrant)
Dated: October 15, 1997 By /s/ Lee E. Derr
---------------- ----------------------------------
Lee E. Derr, Director
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<PERIOD-START> OCT-01-1996
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