SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
[X] Preliminary Information Statement [ ] Confidential, For Use Of The
Commission Only (as Permitted
by Rule 14c-5(d)(2))
[ ] Definitive Information Statement
SOY ENVIRONMENTAL PRODUCTS, INC.
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(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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SOY ENVIRONMENTAL PRODUCTS, INC.
9135 Barton Street
Overland Park, Kansas 66214
INFORMATION STATEMENT
I. INFORMATION CONCERNING CONSENT OF SHAREHOLDERS
Purpose
This Information Statement is being furnished to the
shareholders of Soy Environmental Products, Inc. (the "Company"), to inform such
shareholders that on or about January __, 1998, the Board of Directors intends
to obtain the written consent of holders of a majority of its outstanding voting
shares for approval to amend its Certificate of Incorporation to authorize the
issuance of up to 3,000,000 shares of preferred stock, $.001 par value. The
approximate date of mailing this Information Statement is December __, 1997.
THE COMPANY IS NOT ASKING YOU FOR AND YOU ARE REQUESTED NOT TO
SEND A PROXY.
Solicitation of Consent from Principal Shareholders
On or about January __, 1998, the Company intends to solicit
the consent of its principal shareholders to approve an amendment to the
Company's Certificate of Incorporation authorizing 3,000,000 shares of preferred
stock, $.001 par value, of the Company (the "Share Authorization"). Principal
shareholders holding a majority of the outstanding voting stock of the Company
have indicated that they will ratify the Share Authorization. Under Delaware
law, a majority of the outstanding shares are necessary to amend the Company's
Certificate of Incorporation to approve the Share Authorization. It is
anticipated that the required consent of the majority will be obtained from the
Company's principal shareholders.
Principal Shareholders
The following table sets forth as of [December] 1, 1997,
certain information regarding beneficial ownership of the Company's Common Stock
by all directors, executive officers and key employees and all persons who own
beneficially, directly or indirectly, more than five percent of the Company's
Common Stock, and all directors, executive officers and key employees of the
Company as a group:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent of Beneficial
Beneficial Ownership of Class(1)(7) Owner
-------------------- -------------- -----
<S> <C> <C>
Sean F. Lee(2) 815,968 16.38%
8855 Black Canyon Freeway
Suite 2000
Phoenix, Arizona 85021
D. J. Stanton(3) 815,968 16.38%
456 Queen Street, W.
Mount Forest, Ontario
CANADA
Lawrence L. Kohler(4) 609,031 12.23%
2525 East Camelback Road
Suite 510
Phoenix, Arizona 85016
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Interchem Environmental, 500,000 10.03%
Inc.(5)(6)
9135 Barton Street
Overland Park, Kansas 66216
Lee E. Derr(5) 500,000 10.03%
9135 Barton Street
Overland Park, Kansas 66214
Capital West Investments 460,400 9.24%
Holding Company, Inc.
2525 East Camelback Road
Suite 510
Phoenix, Arizona 85016
George T. Bard 300,000 6.02%
8347 East Las Estancias
Scottsdale, Arizona 85250
Gary L. Haer 250,000 5.02%
9135 Barton Street
Overland Park, Kansas 66216
Lawrence G. Olson 55,000 1.10%
214 West Vista Avenue
Phoenix, Arizona 85021
All Directors and Executive 1,920,968 38.57%
Officers as a Group (5
Persons)
</TABLE>
Unless otherwise indicated, the Company has been advised that each
person above has sole voting power over the shares indicted.
(1) Based upon 4,980,400 shares of Common Stock being issued and outstanding on
December 1, 1997.
(2) Mr. Lee holds all shares through the Lee Family Trust.
(3) Mr. Stanton holds the shares beneficially through Vexterglen Limited and
such shares are held in trust by the Bank of Ireland. Mr. Stanton holds no
position as management or any other interest in the Company or the Company's
predecessor companies.
(4) Mr. Kohler owns 149,031 shares directly and controls 460,000 shares through
Capital West Investments Holding Company, Inc. ("CWIHC"). Mr. Kohler is
President and holds a majority of the equity stock in CWIHC.
(5) Mr. Lee E. Derr, a Director of and consultant to the Company, is an officer
and director of Interchem (N.A.) Industries, Inc. and its wholly owned
subsidiary Interchem Environmental, Inc. Mr. Derr does not own any shares of
Interchem (N.A.) Industries, Inc. and therefore disclaims any beneficial
interest in the shares of the Company's Common Stock owned by Interchem
Environmental, Inc. Mr. Derr disclaims ownership of any shares of the Company.
(6) Interchem Environmental, Inc. is a wholly owned subsidiary of Interchem
(N.A.) Industries, Inc. Interchem Industries is a corporation with approximately
800 shareholders, with no one shareholder controlling more than 5% of the
outstanding stock.
(7) Certain of these shareholders have committed to transfer, for nominal
consideration, 100,000 shares of previously issued Common Stock to certain
representatives of Fox & Company Investments, Inc.
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<PAGE>
Description of the Company's Securities
As of the close of business on December __, 1997, there were
4,980,400 shares of Common Stock, $.001 par value ("Common Stock"), issued and
outstanding and entitled to vote. Each shareholder of record is entitled to one
vote for each share of the Company's Common Stock held. The Common Stock
constitutes the only class of capital stock of the Company issued and
outstanding. Holders of Common Stock have no preemptive rights and no right to
convert their Common Stock into any other securities. The Company currently has
no authorized shares of preferred stock.
II. REASONS FOR AUTHORIZATION OF PREFERRED STOCK
The Board of Directors has authorized an amendment to the Company's
Certificate of Incorporation to authorize 3,000,000 shares of preferred stock.
The authorization of 3,000,000 shares of preferred stock will permit the
Company's Board of Directors by resolution to authorize the issuance of such
stock as a class, in one or more series, having the number of shares,
designations, conversion prices, relative voting rights, dividend rights,
liquidation and other rights preferences, and limitations that the Board of
Directors fixes without further shareholder approval. The Company anticipates
raising additional equity financing through issuance of preferred stock. The
issuance of shares of preferred stock may give such holders favorable conversion
prices, voting rights, and dividend and liquidation preferences not available to
holders of Common Stock.
The Company is currently engaged in private placement which includes
shares of a series of preferred stock to be designated as Series A 12%
Cumulative Convertible Preferred Stock (the "Series A Preferred Stock"). Up to
2,200,000 shares of Series A Preferred Stock will be issued pursuant to a
Resolution of Designation of such series which will provide for the following:
Dividends. The holders of Series A Preferred Stock shall be entitled to
receive a $.12 (12%) annual dividend, accruing each June 1 and December 1
commencing on June 1, 1998. Dividends shall be payable when, as and if declared
by the Board of Directors, shall be cumulative and shall only be paid out of
funds legally available therefor, if any. Any accumulated but unpaid dividends
will be payable upon conversion of the Series A Preferred Stock to Common Stock.
At the Company's discretion, dividends may be paid in shares of the Company's
Common Stock with a predetermined value of $2.00 per share.
Priority. The Series A Preferred Stock will have preference in payment
of dividends over the Company's Common Stock. In the event of any liquidation,
dissolution or winding up of the Company, the holders of Series A Preferred
Stock will be entitled to receive $1.00 per share of Series A Preferred Stock,
plus any cumulative but unpaid dividends accrued thereon, before the holders of
Common Stock receive any distributions. The Company may not establish a series
of preferred superior to the Series A Preferred Stock, but may establish a
series with equal preferences to dividends and liquidation distributions.
Conversion. The Series A Preferred Stock will be convertible into the
Company's Common Stock in minimum denominations of 1,000 shares initially on a
one-for-one basis. The conversion ratio will be subject to adjustment as of
January 1, 1999 and each January 1 thereafter (each, an "Adjustment Date"). On
any Adjustment Date the conversion ratio will be adjusted to the quotient of
which $1.00 is the numerator and an amount equal to 75% of the Company's Common
Stock five day prior average closing price is the denominator. If any adjustment
changes the conversion ratio to more than one share of Series A Preferred Stock
for one share of Common Stock (or increases such ratio to more than the prior
ratio) notice will be given to all holders of the Series A Preferred Stock and
the holders may elect within 45 days of such notice to convert the Series A
Preferred Stock at the conversion ratio in effect immediately prior to the
Adjustment Date.
Mandatory Conversion. The Series A Preferred Stock will convert
automatically into the Company's Common Stock at the conversion ratio in effect
in the event of a qualified public offering ("QPO") of or upon
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<PAGE>
attainment of a qualified market price ("QMP") for the Company's Common Stock. A
QPO will occur upon the successful completion of a public offering of the
Company's Common Stock at a price of not less than $4.00 per share with total
gross proceeds of not less than $5,000,000. A QMP will occur at any time after
January 1, 1999 in the event the closing bid price of the Company's Common Stock
in an established market equals or exceeds $4.00 per share for 90 consecutive
trading days with volume of not less than one percent of the shares outstanding.
Anti-Dilution. The conversion ratio of the Series A Preferred Stock
will be subject to adjustment to prevent dilution in the event of any stock
splits, stock dividends (except dividends payable on the Series A Preferred
Stock) or other adjustments to capital structure of the Company.
Registration Rights. Within 120 days of the closing of the Offering
which includes the Series A Preferred Stock, the Company intends to file with
the Securities and Exchange Commission a registration statement or appropriate
form registering for resale of shares of Company Common Stock into which the
Series A Preferred Stock is convertible. The Company intends to use its best
efforts to cause such registration statement to become effective and to maintain
such registration statement for at least three years thereafter.
The proposed amendment to the Company's Certificate of Incorporation
and implementation of the Series A Preferred Stock designation will allow the
Company to meet its obligations under the private placement as contemplated.
III. FINANCIAL INFORMATION AND OTHER
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
========
The Accompanying Notes are an Integral Part
of the Financial Statements
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<PAGE>
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 $ (172,857) $ (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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<PAGE>
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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<PAGE>
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.
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<PAGE>
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-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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<PAGE>
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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<PAGE>
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.
Changes in or Disagreements With Accountants
The Financial Statements of DEI for the period commencing September 15,
1996 through September 30, 1996 have been audited by Semple & Cooper, P.L.C.,
independent auditors.
From the inception of the Company until the acquisition of DEI its
accountants were Rotenberg Company, L.L.P. of Rochester, New York. Due to the
change in control of the Company resulting from the acquisition of DEI, the
Company's Board of Directors decided to retain as its certifying accountant the
accountants for DEI, Semple & Cooper P.L.C. of Phoenix, Arizona. The decision to
change accountants was that solely of the Company's Board of Directors. At no
time have there been any disagreements with prior or current accountants
regarding any matter of accounting principals or practices, financial statement
disclosure, or auditing scope or procedure. None of the accounting reports
associated with the financial statements of either the Company or DEI over the
past two years or from the date of inception to the date hereof contained an
adverse opinion or disclaimer of opinion, or was modified as to uncertainty,
audit scope, or accounting principles.
By Order of the Board of Directors
/s/ Gary L. Haer
----------------------------------------
Secretary
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