IOSB12G
Form 10-SB/A
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of
The Securities Exchange Act of 1934
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
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(Formerly Denom Acquisition Corp.)
(Name of Small Business Issuer)
Delaware 48-1192445
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(State of Incorporation) (I.R.S. Employer ID No.)
9135 Barton Street, Overland Park, Kansas 66214
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(Address of Principal Executive Offices)
Issuer's Telephone Number: 1-913-599-0800
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Securities and Exchange Commission File Number: 21N-10160-86
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Securities to be Registered under Section 12(b) of the Act: NONE
Title of each Class Name of each Exchange on which
to be so Registered: each Class is to be Registered:
Not Applicable Not Applicable
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Securities to be Registered under Section 12(g) of the Act:
Title of each Class to be so Registered:
Common Stock, $0.001 Par Value
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PART I
ITEM 1: DESCRIPTION OF BUSINESS
SOY ENVIRONMENTAL PRODUCTS, INC, formerly Denom Acquisition Corp., a
Delaware Corporation, hereinafter the "Company") was incorporated on January 10,
1996. The Company was established by an exchange of the stock of Cactus Patch
Farms, Inc. common stock for 8,816,992 shares of Denom Holding Company stock.
This was done in consideration of all of its assets and in consideration of
Denom Holding Corporation agreeing to fund legal and other organizational costs.
There were no assets of any value transferred. Denom had no prior history or any
operations of any kind. As such there is no prior operating history and no
history of development of business by Denom. On September 3, 1996 the Company
entered into an agreement to acquire 100% of the issued and outstanding shares
of Common Stock of Delta Environmental, Inc., a Delaware Corporation
(hereinafter "DEI"). The business purpose of the merger was to allow the Denom
shareholders to become shareholders in the development of the retail marketing
of biodegradable non toxic cleaning solvents. While Delta Environmental Inc, had
only nominal revenues at the point of merger, the management of Denom considered
the future business potential to be sufficient to accept the merger. Said
acquisition was completed on October 21, 1996. Prior to the acquisition of DEI
the Company had not engaged in any form of commercial business activity and as a
result had no operating history. Further, prior to the acquisition of DEI,
neither the Company nor any of its officers or Directors had any affiliation
with DEI and DEI or any of its Officers, Directors or Principal Shareholders had
any affiliation with the Company. DEI was incorporated on October 1, 1996 to
engage in the development of, ownership of interests in, and operation of
biodegradable chemical facilities. The merger was an arms length transaction. As
disclosed in Item 4, no one who may be considered a control group, promoters of
the Company, and/or affiliates of the prior control group remain as promoters
and/or affiliates of the Company.
The Company was established to develop and market consumer and
industrial products made from soybean oil. Products derived from soybean oil
possess rather unique characteristics that have value to the consumer and
industrial market segments. Soybean oil based products provide an effective
alternative to petroleum based products commonly used by the homeowner and
industry. The Company has developed and is marketing a line of environmentally
friendly products to industrial, municipal, and institutional entities. Derived
from a renewable resource, soybeans offer an environmentally preferred
alternative to petroleum and chemically based products. The Company's existing
branded line of products, as a result of comparative testing, meets or exceeds
industry standards for competing products as well as having a better
environmental profile than petro/chemical based products.
Results of "comparative testing" include the PSCC Project Report which
was prepared
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by the U.S. Army Materiel Command Logistics Support Activity Packaging, Storage,
and Containerization Center in Tobyhanna, PA. and is included as Exhibit 12 to
this filing. Exhibit 13 was prepared by ARCO Chemical Company in Newtown Square,
PA. These tests were conducted by independent third parties and represent some
of the product performance, environmental, and toxicity characteristics.
The testing conducted by the U.S. Army evaluated SoyClean for military
vehicle degreasing operations and determined that SoyClean is acceptable as a
substitute for other cleaners used in degreasing operations. The report also
confirmed SoyClean as non-irritating to skin as well as its environmental and
human safety.
The ARCO Chemical Company testing evaluated the use of SoyClean/NMP as
a Graffiti Remover. The testing compared performance and safety (in terms of
ingredient flash point) and found SoyClean/NMP to effectively remove various
permanent markers and paints. SoyClean/NMP was tested against 7 other paint
removers and out performed the other removers in terms of performance and
flammability.
The supporting documentation follows this response and is filed as an
exhibit for reference.
1. U.S. ARMY MATERIEL COMMAND LOGISTICS SUPPORT ACTIVITY PACKAGING,
STORAGE, AND CONTAINERIZATION CENTER, September 1995.(Exhibit 12)
2. ARCO CHEMICAL COMPANY TECHNICAL DATA, August 1994.(Exhibit 13)
With the current trend toward products that are safer to workers as
well as safe to the environment, there exists an increasing demand for products
that are non-hazardous and non-polluting. This trend, along with the current
Federal and State regulatory posture toward the use of volatile organic
compounds, has created significant opportunities for the Company to prosper and
gain market share with its branded "SoyClean" line of environmentally friendly
products.
The Company is poised to meet the consumer demand for products that
protect the environment and offer an environmental substitute for hazardous,
toxic or volatile products. Accelerating this demand is the current federal and
state regulatory positions regarding the use of environmentally hazardous or
toxic substances. These factors will drive fulfillment of current and future
market needs and enable the Company to develop additional products that satisfy
consumer demand for environmental products.
THE COMPANY
Soy Environmental Products, Inc. is a vertically integrated
organization with ownership in the production of the raw material to sales of
the finished product. This includes a 6,000 square foot facility located in Iowa
for processing, packaging, and production of the product line. The Company's
operations include the manufacture and processing of the soybean component of
formulations as well as the marketing and sales of the "SoyClean"
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family of environmental products. This integration assures the Company a steady,
reliable supply of the basic formulation ingredient for finished goods.
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THE PRODUCTS
The Company currently has four products in its commercial product
line. The commercial line is being used by municipalities, institutions, and
manufacturers. These products meet or exceed the competitive standards for
similar products in addition to offering ancillary benefits. One unique benefit
the commercial line offers customers is a better work environment for personnel.
"SoyClean" products give the potential for fewer work related illnesses,
injuries, and workers compensation claims. In fact, great pleasure and
satisfaction is taken whenever the Company learns that workers no longer have to
go home with headaches as a result of breathing volatile spirits in the
workplace. Various customers have also disclosed that their employees or users
of the products no longer experience skin reactions on their hands when using
"SoyClean".
Another benefit cited by customers is the reduction of administrative
time devoted to documenting and maintaining records for the use of hazardous
solvents and chemicals. The reduction of volatile compounds in manufacturing
plants by replacing petroleum based solvents with soybean based solvents reduces
the amount of emissions that are monitored and reported to the EPA or other
regulatory agencies. In some instances it allows them to cease reporting and
eliminates payment of taxes or fines levied on industrial polluters. The use of
biodegradable soy based products further reduces concerns about spills and clean
up of hazardous substances, another product benefit. This enhances the
customer's image not only with their employees but also in their local community
and state.
The Commercial product Line consists of the following Five (5) products:
SoyClean
Graffiti Remover
SoyRelease
SoyFormula
Naturen
Each of these products offer characteristics that exceed those of
competitive products while meeting or exceeding industry performance standards.
Key characteristics of these products are their biodegradable nature and lack of
volatile emissions that could harm the ozone. The products are also
characterized by the absence of harmful or explosive fumes or vapors leading to
safer operating conditions for industrial users.
SoyClean Graffiti Remover is formulated for use by municipalities,
institutions, school districts, utility companies, and law enforcement
organizations. It effectively removes graffiti from a wide range of surfaces and
is available in five package sizes. It replaces
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petroleum and hydrocarbon based graffiti cleaners and it has unmatched worker
and environmental safety characteristics.
SoyRelease is a product designed for state, local, and federal
Departments of Transportation and the paving and general contracting industries.
It prevents asphalt from adhering to truck beds, paving equipment, and other
metal surfaces. SoyRelease is also effective at removing asphalt and tar from
vehicles and other surfaces. SoyRelease is a biodegradable substitute for diesel
and other petroleum based products used for cleaning at construction sites.
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SoyFormula is a replacement for hazardous mineral spirits or
petroleum based solvents used in the industrial and commercial manufacturing
market segments. It can be used as an industrial cleaner or parts washer and
helps industry meet compliance with environmental, health and safety standards
and regulations.
Naturen is a product formulated for printing press blanket washing as
well as other press components. It has been in use in Europe since 1991 and
meets regulatory standards for the U.S. printing industry.
In addition to the commercial product line, the Company is developing
products that it believes will meet or exceed competitive standards in the
retail consumer market. These branded products focus on common cleaning uses
found throughout the home and small businesses. The biodegradable, non-toxic
nature of these products, in addition to their effective cleaning
characteristics, position these products for consumer acceptance in the market
place.
The "SoyClean" retail line is composed of products that can be used
by the homeowner as well as industrial, commercial, and institutional settings.
The unique characteristics of the retail line is the biodegradable, non toxic
nature of the products. Again, as with all of the Company's products, a soybean
derivative is the key component of the formulation. The "SoyClean" retail line
consists of the following products:
Graffiti Remover - This biodegradable product effectively removes
graffiti from a variety of surfaces. It is effective on paints as well as
markers and has been used by numerous municipalities, schools, utilities, and
homeowners. The product is offered in three container sizes for commercial and
home use.
Barbecue Grill Cleaner - Designed to attack the build up of grease
and char on barbecue cookers and grills, this product softens and loosens the
soiled surfaces prior to rinsing.
Adhesive/Mastic Remover - Specially formulated to remove adhesive and
mastic from hard surfaces, this biodegradable product softens the adhesive or
mastic so that cleanup with water is all that is necessary.
Paint Stripper - A biodegradable product that aggressively strips
paint, varnish, and other similar finishes from a variety of surfaces. The
product is
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packaged in container sizes appropriate for both the homeowner and the
commercial customer.
Driveway Cleaner - This biodegradable product cleans driveways,
sidewalks, and other concrete surfaces. It is perfect for use in commercial
workshop, automotive repair shop, and by the homeowner in their garage, the
basement, or on the patio and driveway.
Lubricant - This multi-purpose lubricant is designed for use around
the home, garage, shop, factory, or office. It is a biodegradable non-toxic
lubricant that penetrates rust, loosens frozen parts, provides a light coating
for lubrication of moving parts, and protects against corrosion.
Hand Cleaner & Soap - A biodegradable, waterless hand cleaner that
effectively cleans oil, grease, grit and grime while conditioning and softening
the skin.
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Engine Degreaser - This product removes grease, oil, and dirt from
engines. Simply spray on the degreaser, give the product time to work, and hose
off. It is biodegradable, non-toxic with no hazardous vapors.
Bug and Tar Remover - Biodegradable and non-toxic, this product
effectively removes bugs, tar, road oil, and asphalt from vehicles and other
surfaces.
Gasket Remover - Designed for use by the auto mechanic, this product
helps loosen and clean gasket materials. Also is biodegradable and non-toxic.
Car Wash - This biodegradable product loosens dirt and grime from
vehicles and can be rinsed into the sewer. This cleaner will biodegrade in
municipal waste treatment facilities.
Soy Environmental Products, Inc. has signed a license agreement with
Interchem Environmental, Inc. which gives the Company the exclusive sales rights
for the world for SoyClean (TM) Solvent, SoyClean (TM) Graffiti Remover,
SoyRelease (TM) Solvent, and Naturen (R). This is effectively all of the
products of Interchem Environmental, Inc. The Company is granted this right for
a term of 25 years and agrees to use its best efforts to market and promote the
products. The Company agrees to pay a royalty to Interchem of one-half of one
percent (0.05%) of gross sales and to transfer to Interchem five hundred
thousand shares of Delta Environmental, Inc., common stock.
MARKETING
The attributes of the "SoyClean" product line are elements that
promote the products as environmentally friendly alternatives to products
currently in use. The consumer is becoming more and more environmentally
conscious and this trend continues the Company believes the appeal of "SoyClean"
products will be enhanced. The Company intends to use television and other mass
media to create awareness of its total product line.
Industrial Products
The Industrial Product Line is in the introductory/early growth stage
of a product life cycle. The Company expects demand for environmental products
by industry to continue and expand. Sales for the Industrial Line will be
directed through an in house employee sales force. The unique characteristics
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and benefits of the product line to industry and the environment has the
potential to fulfill a part of the current and future demand for environmentally
safe products. The use of the products provide value to the customer in ways
that are not measured in monetary terms. The value to the customer of a product
that reduces worker exposure to harmful substances, reduces administrative
overhead, and reduces ownership concern about liabilities associated with
hazardous spills makes "SoyClean" Industrial Products a viable choice in the
marketplace. Sales as of March 31, 1997 have been minimal with the only sales
being samples or trial orders.
Retail Products
The Company's Chairman has an extensive background in the Home Center
retail market segment and has been actively involved in senior management of
several major national companies involved in the sales and distribution of
retail products. The Company's Chairman, Sean F. Lee has served in management
positions in the retail industry since 1963. Recently, Mr. Lee was co-founder
and Chairman of INFOPAK, a company which manufactured a handheld computer and
created custom software for the real estate industry. He held the position of
Chairman from inception in January 1991 till its sale in October 1996. Mr. Lee
in October 1996 accepted the position of co-founder and Chairman of Soy
Environmental Products, Inc., a manufacturer of cleaners and solvents for the
retail market. Mr. Lee's retail experience includes 18 years with Montgomery
Ward starting as a trainee and ending in 1981 as merchandise manager for the
Western Region. In 1982 he joined W. R. Grace as a divisional Vice President
ending in 1986 as CEO of Grace Homecenters West. Mr. Lee was CEO of Homebase, a
$1.7 billion home improvement chain in 1988 and 1989. This background gives the
Chairman a presence with key manufacturers' representatives who will be
instrumental in taking the "SoyClean" product line to targeted retail segments.
The Company's strategy is to utilize its management's knowledge of the
distribution channels required in order to establish a line of branded products
with the appropriate retail outlets.
The Company plans to launch the Retail Product Line during the first
quarter of 1997 by concentrating on the penetration of the Home Center market
segment. This segment contains petro/chemical based products that have
applications similar to many of the "SoyClean" environmental friendly products.
It is anticipated that the reputation of the Company's Chairman
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within this market segment will have the effect of minimizing many of the
obstacles to market entry by new products and new companies.
The Company expects to have "SoyClean" products available in stores
such as Home Depot, Pep Boys, Payless Pharmacy, Safeway Supermarkets and other
similar national retail chains. Since the Company's retail products are price
competitive and price elastic, its strategy is to penetrate targeted markets by
educating and informing consumers about the attributes of "SoyClean". The
Company intends to get maximum exposure for "SoyClean" products by utilizing a
national advertising campaign to achieve this objective. This approach is
appropriate for mass promotion and affords efficient communication of the
message to a large number of consumers. The campaign will help establish the
"SoyClean" brand identity and convey to the consumer the availability of
products that satisfy their needs.
In summary, the Company's marketing strategy for the Industrial and
Retail Product Lines is designed to increase awareness and knowledge of
"SoyClean" benefits and value. The Company will utilize the strengths of
management to open the appropriate channels of distribution, and use cost
effective advertising and promotion techniques to create consumer awareness.
Need to Develop Market For Consumer Products
The Company has not yet established any distribution system for its
consumer products, and no assurance can be given that its consumer product will
be accepted, or that a satisfactory distribution network can be established
which will result in its consumer products being a success.
Uncertainty of Widespread Market Acceptance of Consumer Products, Limited
Marketing Experience
The Company is currently developing, and has not yet marketed, its
line of consumer products. As of March 31, 1997, there have been no sales of
consumer products, and the Company has conducted only limited marketing
activities and has limited marketing experience with respect to its consumer
products. As is typical with new products, demand and market acceptance for the
Company's consumer products are subject to a high level of uncertainty.
Achieving widespread market acceptance for these products will require
substantial marketing efforts and the expenditure of significant funds to create
brand recognition and customer demand for such products and to cause potential
customers to consider the potential benefits of the Company's products as
against the traditional products to which they have long been accustomed.
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Moreover, the Company has limited marketing capabilities and
resources. To date, substantially all of the Company's marketing activities with
respect to its consumer products have been conducted by members of management.
The prospects for the Company's consumer products will be largely dependent upon
the Company's ability to achieve market penetration for such products. Achieving
market penetration will require significant efforts by the Company to create
awareness of and demand for the Company's products and services. Accordingly,
the Company's ability to build its client base will depend on the Company's
ability to locate, hire and retain sufficient qualified marketing personnel.
There can be no assurance that the Company's consumer products will achieve
widespread market acceptance or increased sales or that the Company's efforts
will result in profitable operations.
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Need for Additional Development of Certain Products
The Company believes that its development work on its products is
substantially complete. However, testing of these products has been limited. The
Company anticipates that its future research and development activities combined
with experience gained from commercial production and use of the products could
result in the need for further refinement and development. The Company also
expects to modify the products for particular customer applications. There can
be no assurance that unforeseen circumstances will not require expensive
additional development of the consumer products and their applications. In
addition, the Company may in the future need to make improvements in its
industrial and consumer products in order for such products to remain
competitive.
Limited Patent and Propriety Information Protection
The Company believes that the proprietary technology used in its
products does not infringe on the proprietary rights of others. In the event
that the Company's products infringe patent or proprietary rights of others, the
Company may be required to modify its process or obtain a license. There can be
no assurance that the Company would be able to do so in a timely manner, upon
acceptable terms and conditions or at all. The failure to do so would have a
material adverse effect on the Company. In addition, there can be no assurance
that the Company will have the financial or other resources necessary to defend
a patent infringement or proprietary rights action. Moreover, if any of the
Company's products infringe patents or proprietary rights of others, the Company
could, under certain circumstances, become liable for damages, which could have
a material adverse effect on the Company. The Company also relies on proprietary
know-how and confidential information and employs various methods to protect
the processes, concepts, ideas and documentation associated with its technology.
However, such methods may not afford complete protection and there can be no
assurance that others will not independently develop such processes, concepts,
ideas and documentation. Although the Company requires all of its employees to
sign confidentiality agreements, there can be no assurance that such agreements
will be enforceable or will provide meaningful protection to the Company. There
can be no assurance that the Company will be able to adequately protect its
trade secrets or that other companies will not acquire information which the
Company considers to be proprietary. Moreover, there can be no assurance that
other companies will not independently develop Know-how comparable to or
superior to that of the Company.
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The Company has acquired through its agreement with Interchem Environmental the
patent rights for Naturen (R). Naturen is the patented printing press blanket
wash. Interchem has the exclusive United States rights to this product and has
passed these rights to the Company through the license agreement with Soy
Environmental. The Company holds no other patents.
Adequacy of Product Liability Insurance
The use of the Company's products entails inherent risks of adverse
effects which could expose the Company to product liability claims. Product
liability claims could have a material adverse effect on the business and
financial condition of the Company. The Company does not currently have any
product liability insurance, which means that all of the Company's assets are
subject to any product liability claim. While the Company intends to obtain and
maintain $1,000,000 in product liability insurance, there can be no assurance
that the Company will be able to maintain or obtain adequate product liability
insurance on acceptable terms or that such insurance will provide adequate
coverage against all potential claims.
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COMPETITION
The market for environmentally friendly chemical products is recent
and a rapidly growing segment of the U.S. economy. Numerous companies similar to
the Company have entered the market in the last few years in anticipation of the
perceived opportunities surrounding environmentally safe products and as a
result the markets for the Company's products are highly competitive. The
Company believes that its products can compete and that its management's
qualifications will enable it to compete effectively. However, many of the
current competitors in the market place have significantly longer operating
histories and greater financial resources than the Company. A significant factor
in the Company's retail products ability to compete in the market will be its
ability to secure "shelf space" with major national retail chains.
Because the Company's consumer products are new, the scope of the
Company's competition is difficult to access accurately. Currently, most
cleaners, solvents and other products competitive with those of the Company are
petroleum based and are not biodegradable. The Company will compete with
numerous well-established chemical and consumer products companies, all of which
possess substantially greater experience, financial, marketing, personnel and
other resources than the Company and have established greater recognition for
their brand names than the Company. Many of the Company's competitors have
achieved significant national, regional and local brand name and product
recognition and engage in extensive advertising and promotional programs, both
generally and in response to efforts by additional competitors to enter new
markets and/or to introduce new products. In addition, the Company believes that
these competitors have the resources to develop and have developed, are
developing, or may develop and market products directly competitive with
products incorporating the Company's technology. Current competitors or new
market entrants could produce new or enhanced products with features that render
the Company's products obsolete or less marketable. The Company's ability to
compete successfully will depend on the Company's continuing research and
development of new and improved products and on the Company's ability to adapt
to technological changes and advances. There can be no assurance that the
Company will be able to compete successfully, that competitors will not develop
technologies or products that render the Company's products obsolete or less
marketable or that the Company will be able to successfully enhance its products
or develop new products.
MERGER AND/OR ACQUISITION OPPORTUNITIES
Even though mergers will be a path to growth and development, the
Company will seek only mergers with or acquire firms that can provide audited
financial statements, and can easily fall within the scope of the Company's
present and future growth plans. There are certain risks which may arise from
any merger situation, especially where there is an opportunity to acquire or
merge with a relatively new operating entity, however, all efforts
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will be exercised to minimize such risks with careful examination of the merging
or to be acquired company, its audited financial statements, as well as an
analysis of the potential for success based on present and potential competition
and overall market conditions.
The Company has no plans, arrangements or understandings regarding mergers or
acquisitions.
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FACILITIES
The Company through its subsidiary Delta Environmental, Inc. leases,
on a month to month basis, approximately 3800 sq/ft of office space at its
principal place of business in Overland Park, Kansas, The lease expires on
September 30, 1997 and the annual rent is $42,000.00. The space is used for the
general administration of the Company including all marketing of the Company's
products. In addition the Company owns a 25% equity interest in a two million
gallon a year manufacturing facility in Ralston, Iowa consisting of 6,000 sq/ft
of production space plus outdoor storage tanks. This interest is owned by virtue
of a 25% direct interest in Interwest, L.C., a limited liability organized in
Iowa. The facility is co-owned and managed by West Central Cooperative also of
Ralston, Iowa. The production facility is utilized to process Soy Bean Oil which
is further distilled into Methyl Esters and Glycerin. The Methyl Esters are then
formulated with various additives to produce the Company's final products. The
Glycerin by-product is sold to third parties for use in unrelated products. The
Ralston facility is expected to meet the production needs for the Company into
the near future and should sales exceed the current production capacity of the
facility it can easily be expanded.
EMPLOYEES
At March 31, 1997, the Company employed four full time personnel, two
administrative and two marketing employees. The Company's employees are not
covered by any collective bargaining agreements or unions.
The Company considers its relationship with its employees to be good.
INDUSTRY SEGMENTS
No information is presented as to industry segments. The Company is
presently engaged in a single line of business involved in the development of,
ownership in, and operation of biodegradable chemical facilities. Reference is
made to the financial statements included herein in response to Part F/S of this
Form 10SB for a statement of the Company's revenues and operating profits
(losses) since the date of inception. The Company has not expended any funds
since inception on research and development.
GOVERNMENT REGULATION
The Company is regulated pursuant to the Securities Act of 1934 as
well as the rules and regulations promulgated by the Securities and Exchange
Commission. The Company is also subject to State Securities Laws in the States
where it operates as well as the States in which its securities may be sold. In
addition, since the Company is engaged in the chemical
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industry it may be subject to various Federal and State laws and regulations,
including but not limited to, The Environmental Protection Agency, The Federal
Trade Commission, and The Department of Agriculture.
The Company's products do not utilize chemicals that are classified
under applicable laws as hazardous chemicals or substances. The production of
the Company's products does not currently produce waste or by-products, and none
are expected to be generated by potential new products. The Company does not
intend to maintain insurance to compensate it for any liabilities it may incur
if it were to violate environmental protection laws or regulations. However,
there can be no assurance that the Company will not incur environmental
liability arising out of the use of
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hazardous substances. To date, the Company does not believe that it or DEI has
incurred any such liability in their operations. The use of certain chemicals
and other substances is subject to extensive and frequently changing federal,
state, provincial and local laws and substantial regulation under these laws by
governmental agencies, including the United States Environmental Protection
Agency, the Occupational Health and Safety Administration, various state
agencies and county and local authorities acting in conjunction with federal and
state authorities. Among other things, these regulatory bodies impose
requirements to control air, soil and water pollution, to protect against
occupational exposure to chemicals, including health and safety risks, and to
require notification or reporting of the storage, use, and release of certain
hazardous chemicals and substances. The Company believes that it is in
substantial compliance with all material laws and regulations governing its
material business operations and has obtained all material licenses and permits
required for the operation of its business. There can be no assurance that the
Company in the future will be able to comply with, or continue to comply with,
current or future government regulations in every jurisdiction in which it will
conduct its material business operations without substantial cost or
interruption of its operations, or that any present or future federal, state,
provincial or local environmental protection regulations may not restrict the
Company's present and possible future activities. In the event that the Company
is unable to comply with such requirements, the Company could be subject to
substantial sanctions, including restrictions on its business operations,
monetary liability and criminal sanctions, any of which could have a material
adverse effect upon the Company's business.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 Amendment No. 1 to Form 10SB and/or
amendments reflecting operations and financial condition both before and after
the acquisition of DEI. As set forth in Item 1 above, 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 DEI.
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Therefore, all discussions below concerning the Company prior to the acquisition
of DEI relate to and reflect the operations of DEI only.
Liquidity and Capital Resources:
From the date of inception to the date of the acquisition of DEI the
Company had no revenues or operating income. As of March 31, 1997 the Company
has nominal revenues of $5000 for first quarter of 1997. This was primarily
samples and trial amounts. As of the date of acquisition of DEI, the Company had
no tangible assets. As a result of the acquisition of DEI, for the period from
the date of inception September 15, 1996 through September 30, 1996 the Company
had total assets of $181,515 and total stockholders' equity of $124,774. During
the same period the Company had current assets of $21,512 in the form of cash,
and current liabilities of $56,791. The Company's capital resources consisted of
$21,512 in cash.
For the six month period ending March 31, 1997 the Company had total
assets of $264,460 and total stockholder's equity of $159,701. During the same
period the Company had current assets of $14,080 of which $5,130 was cash and
current liabilities of $104,759. At the same date current payables were $40,167
and current receivables were $2,550. The Company currently does not have any
long term debt. The Company will continue with a fiscal year of September 30.
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Since inception the Company's (and its subsidiary) working capital
needs have been satisfied by financing activities primarily consisting of the
private placement of Common Stock. The Company anticipates meeting its working
capital needs during the current fiscal year primarily with revenues from the
sale of securities and secondarily from operations, if any. For the period from
the date of inception September 15, 1996 through September 30, 1996 the Company
showed an operating loss of $40,726 and for the six month period ending March
31, 1997 an operating loss of $193,481. The Company believes that it will
require additional funds to cover the costs of manufacturing it products,
general and administrative overhead, meeting its reporting obligations under the
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. 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. If the Company is
unable to secure financing from the sale of its securities or from private
lenders, management believes that the Company will be able to continue operating
by realizing working capital from its current operations and its current funding
activities. In the opinion of management inflation has not had a material affect
on the operations of the Company.
During the next 12 months the Company will establish a manufacturer's
representative organization to represent the Company's products throughout the
U.S. as well as internationally. The organizations will be responsible for
contacting and developing target markets as determined by the Company's
management. Initially the marketing efforts will concentrate on two market
segments involving large hardware/home center retail chains and the light
industrial and automotive users.
Results of Operations
From the date of inception to the date of acquisition of DEI, the
Company had no revenues or operating income. Prior to the acquisition of DEI the
Company's expenses were minimal and administrative in nature. The Results of
Operations discussed below reflect only the operations of DEI. Included herein
are audited financial statements of DEI covering the period from inception
through September 30, 1996 and unaudited consolidated statements for the three
month period ending March 31, 1997. For the period from the date of inception,
Spetember 15, 1996 through September 30, 1996 DEI had a net operating loss of
$40,726 on total revenues of $0.00. For the six month period ending March 31,
1997, DEI had a net operating loss of $193,236 on total revenues of $3,133.
Absence of Historical Profitability, Continued Losses, Accumulated Deficits
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. There can be no assurance as
to the amount of income which the Company may be able to generate from
operations. Losses have primarily resulted from high start-up costs and 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.
<PAGE>
ITEM 3: DESCRIPTION OF PROPERTY
The Company owns no real property and tangible personal property
consists of minor office equipment. The Company considers its exclusive license
for the promotion, use, sale, distribution and manufacturing of its "SoyClean"
products as well as its 25% equity interest in Interwest LLC, an Iowa Limited
Liability Company, which owns the Ralston, Iowa production facility to be
tangible assets.
ITEM 4: SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS & MANAGEMENT
The following table sets forth information with respect to: (i) any
person, management or otherwise, known by the Company to own beneficially more
than five percent (5%) of the Company's common stock; (ii) the shares of Common
Stock beneficially owned by each Officer & Director of the Company; and (iii)
the total of the Company's Common Stock beneficially owned by Company's Officers
and Directors as a group. Each stockholder holds the sole voting and investment
power with regard to the shares owned beneficially by such stockholder.
Name and Address of Amount and Nature Percent of Beneficial
Beneficial ownership of Class(l) Owner
VEXTERGLEN LIMITED (6)
Bank of Ireland (IOM) Limited 1,431,174 31.80%
16 St. George Street Douglas
Isle of Man 1MI 1PL
Capital West Investments Holding
Company, Inc., Suite 510 960,762 21.35%
2525 East Camelback Road
Phoenix, Arizona 85016
Interchem Environmental, Inc. (2) (7)
9135 Barton Street 500,000 11.11%
Overland Park, Kansas 66214
Gary L. Haer
9135 Barton Street 200,000 04.44%
Overland Park, Kansas 66216
Lawrence L. Kohler (3)
2525 East Camelback Road, Suite 510 149,031 03.31%
Phoenix, Arizona 85016
Milton R. Barnes
2525 East Camelback Road, Suite 510 149,031 03.31%
Phoenix, Arizona 85016
<PAGE>
Sean F. Lee (4)
7113 West Sack Drive 500,000 11.11%
Glendale, Arizona 85308
George T. Bard 0 0
8347 East Las Estancias
Scottsdale, Arizona 85250
Lawrence G. Olson 0 0
214 West Vista Avenue
Phoenix, Arizona 85021
Lee E. Derr (2)
9135 Barton Street 0 0
Overland Park, Kansas 66214
All Directors and Executive (5) 700,000 15.55%
officers as a Group (5 Persons)
Notes: Unless otherwise indicated in the footnotes below, the Company has been
advised that each person above has sole voting power over the shares indicted.
Note 1: Based upon 4,500,000 shares of Common Stock being issued and outstanding
on December 31, 1996.
Note 2: 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 was also the incorporator of Delta Environmental,
Inc. ("DEI") which was part of the Acquisition. Mr. Derr disclaims ownership of
any shares of DEI or the Company.
Note 3: Lawrence L. Kohler is the President and majority shareholder of Capital
West Investment Holding Company, Inc. and as such has a beneficial interest the
shares of the Company's Common Stock currently owned by Capital West.
Note 4: The shares shown as being beneficially owned by Mr. Sean F. Lee are
shares available for purchase as a result of Stock options granted to Mr. Lee
pursuant to his Employment Contract with the Company. In the event Mr. Lee
exercises all of his options the Company would have 5,000,000 shares issued and
outstanding. The 500,000 shares then owned by Mr. Lee would represent ten
percent (10%) of the Company's issued and outstanding shares of Common Stock.
Note 5: The number of shares shown includes the 500,000 shares under option to
Mr. Sean F. Lee, an officer and Director of the Company.
Note 6. The shares of Vexterglen Limited are held in trust by the Bank of
Ireland. The beneficial owner of these shares is Mr. D. J. Stanton, 456 Queen
Street, W., Mount Forest, Ontario, Canada. Mr. Stanton holds no position as
management or any other interest in Soy Environmental Products. Inc. or the
predecessor companies.
Note 7. Interchem Environmental, Inc,. is a 100% wholly owned subsidiary of
Interchem (N.A.) Industries, Inc Interchem (N.A.) Industries is a corporation
with approximately 800 shareholders. No one controls more than 5% of the
outstanding stock.
<PAGE>
ITEM 5: DIRECTORS, EXECUTIVE OFFICERS,PROMOTERS AND CONTROL PERSONS
The Directors and Executive Officers of the Company and their ages are as
follows:
NAME AGE POSITION
Sean F. Lee 56 Chairman/CEO/Director
George T. Bard 67 President/Director
Gary L. Haer 43 Secretary/Director
Lee E. Derr 48 Director
Lawrence G. Olson 60 Director
All Company Directors were elected upon the closing of the
acquisition of DEI on October 21, 1996, and will remain in office until the next
annual meeting of the stockholders and until their successors have been duly
elected and qualified. There are no agreements between any parties with respect
to the election of Directors. The Company has not compensated its Directors for
service on the Board of Directors, or any committee thereof, or reimbursed for
expenses incurred for attendance at meetings of the Board of Directors and/or
any committee of the Board of Directors. Officers are appointed annually by the
Board of Directors and each Executive Officer of the Company serves at the
discretion of the Board of Directors. The Company does not have any standing
committees. No one who was considered as management or promoters of Denom
Acquisition Corp. exercise any control over or are considered as promoters of
the surviving Company.
Mr. Lee E. Derr, a Director of the Company, is an officer and
director of a Public Company know as Interchem (N.A.) Industries, Inc. and
Interchem Environmental, Inc. a wholly owned subsidiary of Interchem (N.A.)
Industries, Inc. None of the other Officers and/or Directors of the Company are
officers or directors of any other publicly traded corporation, nor have any of
the officers, Directors, Affiliates, or Promoters of the Company filed any
bankruptcy petition, been convicted of or been the subject of any criminal
proceedings, or the subject of any order, judgment, or decree involving the
violation of any state or federal securities laws within the past five years.
All authorized out of pocket expenses incurred by an Officer or
Director on behalf of the Company is subject to reimbursement upon receipt by
the Company of required documentation substantiating such expense. There are no
current plans nor at present does the Company have any current or future
obligation to compensate the individuals serving in the capacity of a Director
of the Company. Compensation of Company Officers and Directors is at the
discretion of the Board of Directors. Mr. Sean Lee is compensated as an Officer
of the Company and Interchem (N.A.) Industries, Inc. is compensated as a
consultant to the Company. Mr. Lee Derr is President of Interchem (N.A.). See
Item 6 Executive Compensation.
The business experience of each of the persons listed above during the past five
years is as follows:
Mr. George T. Bard is a resident of Arizona and is an attorney
admitted to the California Bar. He has a Bachelors Degree from the University of
Michigan and a Law Degree from Lincoln University of San Francisco. Prior to his
involvement in the Company, in addition to practicing law, he was a Vice
President of Continental Gram and served as chief negotiator for the World
Milling Group.
<PAGE>
Mr. Sean F. Lee is a resident of Arizona and holds Degrees from Kells
College in Ireland and Hood College in Maryland. The Company's Chairman, Sean F.
Lee has served in management positions in the retail industry since 1963.
Recently, Mr. Lee was co-founder and Chairman of Infopak, a company which
manufactured a handheld computer and created custom software for the real estate
industry. He held the position of Chairman from inception in January 1991 till
its sale in October 1996. Mr. Lee in October 1996 accepted the position of
co-founder and Chairman of Soy Environmental Products, Inc., a manufacturer of
cleaners and solvents for the retail market. Mr. Lee's retail experience
includes 18 years with Montgomery Ward starting as a trainee and ending in 1981
as merchandise manager for the Western Region. In 1982 he joined W. R. Grace as
a divisional Vice President ending in 1986 as CEO of Grace Homecenters West. Mr.
Lee was CEO of Homebase, a $1.7 billion Home Improvement chain in 1988 and 1989.
He has extensive experience in start ups as well as the initiation of many
retailing endeavors.
Mr. Gary L. Haer is a resident of Kansas and holds a B.S. Degree in
Accounting from Northwest Missouri State University and a MBA from Baker
University. Prior to joining the Company Mr. Haer has held various management
positions in operations, insurance and accounting. As a Manager for Hartford
Insurance Group, he was responsible for market development and control,
financial analysis, and agency management. Part of Mr. Haer's experience
includes, from 1981 to 1992, being a major partner in a diversified agriculture
operation, Haer Farms, where he was responsible for accounting, finance and
operations. During this period he served on several financial review committees
for the FHA. Since 1993, Mr. Haer has been accounting manager for Interchem
(N.A.) Industries, Inc., which developed the Company's products. Mr. Haer will
also serve as the Company's manager of Logistics and Manufacturing.
Mr. Lee E. Derr is a resident of Kansas and holds a B.S. Degree in
Finance from the University of Missouri. In addition he is a CPA. Prior to
founding Interchem (N.A.) Industries, Inc. Mr. Derr was Vice President and CFO
of B.C. Christopher and Company, a Kansas City based Registered Securities
Broker/Dealer. Mr. Derr's responsibilities included banking relationships,
accounting and tax departments, cash management of up to $250MM per month, and
liaison with the SEC, NYSE and the CBT. In addition Mr. Derr previously served
as V.P. of Finance for Wulfsberg Electronics a division of Sundstrand
Corporation. Since 1985 Mr. Derr has been President of Interchem (N.A.)
Industries, Inc. and continues today to direct all aspects of that company's
operations. The Company purchased its rights to its "SoyClean" product line form
Interchem.
Mr. Lawrence G. Olson is a resident of Arizona and holds a B.S.
Degree in Civil Engineering from the University of Southern California. He
currently is President and Owner of Olson Precast of Arizona, Inc., a precast
production and construction company of which he has been affiliated with since
1973.
The business of the Company will be largely dependent upon the
efforts of Mr. Sean F. Lee and Mr. Lee E. Derr. The Company does not currently
have, but intends to obtain and maintain, key-man life insurance in the amount
of not less than $1,000,000 (USD) on Mr. Lee.
<PAGE>
However, even with such insurance, Mr. Lee's marketing skills and experience
would be difficult for the Company to replace.
<PAGE>
ITEM 6: EXECUTIVE COMPENSATION
At present the Company does not maintain any form of bonus, profit
sharing, or deferred compensation plan for the benefit of any Employees,
Officers or Directors. The Board of Directors is currently considering a package
of benefits and will present a plan at the Company's next annual meeting. There
are no employment contracts with any individual working for or associated with
the Company or its subsidiary except for the Chairman/CEO, Mr. Sean F. Lee. The
next annual meeting is set for November 7, 1997.
Mr. Lee has entered into a three year employment contract with DEI
whereby beginning January 1, 1997 he will be paid an annual salary of $100,000.
At such time as the gross annual revenues of the Company exceed $5,000,000 the
salary will increase to $150,000 per year and in addition Mr. Lee will receive
an override equal to nine-tenths of one percent (0.9%) of the Company's gross
revenue. Said override shall be payable quarterly. As part of the employment
agreement the Company has granted Mr. Lee an option to purchase up to 500,000
shares of the Company's Common Stock at Thirty Three Cents ($0.33) per share.
The specific terms of the option are to be set forth in a Stock Option Agreement
which the Company has not yet prepared.
The Company has entered into a two year Consultancy Agreement with
Interchem (N.A.) Industries, Inc. whereby in exchange for consulting services
the Company, beginning January 1, 1997, will pay a monthly consulting fee in the
amount of $8333.33. Mr. Lee E. Derr, a Director of the Company, is an officer
and director of Interchem (N.A.) Industries, Inc.
<TABLE>
<CAPTION>
Name and Year Annual Annual other Annual All Other
Principal Position Salary Bonus Compensation Compensation
<S> <C> <C> <C> <C> <C>
Sean F. Lee 1996 $0.00 $0.00 $0.00 $0.00
Chairman & CEO
George T. Bard 1996 $0.00 $0.00 $0.00 $0.00
President
Gary L. Haer 1996 $0.00 $0.00 $0.00 $0.00
Secretary/Treasurer
</TABLE>
The Officers and Directors of the Company, during 1996 after the
acquisition of DEI, did not receive any form of cash or other compensation. In
the future, in addition or in lieu of current forms of compensation, the Company
may establish with each Company Officer and/or Director some form of new or
additional compensation. Said compensation may include a situation wherein an
Officer or Director could receive shares of the Company's Common Stock in lieu
of cash until such time that the Company can sustain such expenses on a cash
basis. In the event shares of the Company's Common Stock are delivered to an
Officer and/or Director as compensation, the value of the shares delivered will
be based on one or more of the following basis: the then current market value of
the shares as traded on a public exchange; the then current Book Value of the
shares; or as determined by the Company's Board of Directors. The dollar amount
of compensation due each Officer and/or Director and a formulae for valuing the
shares of the Company's Common Stock in order to determine the number of shares
to be issued as compensation will be determined by the Board of Directors prior
to the issuance of any shares of the Company's Common Stock. No dollar amount of
Officer/Director compensation or formulae for determining the value of the
shares of the Company's Common Stock has been determined at this time and the
Board of Directors has no plans to make such a determination in the near future.
<PAGE>
ITEM 7: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no arrangements between the Company and any of its
current or previous Officers, Directors, or nominees for election as a Director,
or any shareholder owning greater than five percent (5%) of the Company's
outstanding shares, nor any member of the above referenced individuals'
immediate family except as set forth below. The Company currently does not have
in force or effect any policies, procedures or controls with respect to entering
into future transactions with its Officers, Directors, Affiliates or a Related
Party.
Mr. Sean F. Lee, Chairman/CEO/Director of the Company, as a result of
his Employment Agreement has an option to purchase up to 500,000 shares of the
Company's Common Stock for Thirty Three Cents ($0.33) per share. In the event
Mr. Lee were to exercise his stock purchase options, based on the current number
of shares of Common Stock issued and outstanding, he would then own ten percent
(10%) of the Company.
Mr. Lawrence L. Kohler is the President and majority shareholder of
Capital West Investments Holding Company, Inc. and as such has a beneficial
interest in the shares of Company Common Stock currently owned by Capital West.
Capital West Investment Group an affiliate of Capital West Investments Holding
Company, of which Mr. Kohler is President, will be involved as a financial
consultant in an anticipated private placement of shares of the Company's Common
Stock and as a result the Company will pay a consulting fee and/or sales
commission to Capital West Investment Group. Capital West has received $41,000
in commissions through March 31, 1997. There have been no consulting fees paid
or accrued.
In September of 1996 DEI entered into a 25 year License Agreement
with Interchem Environmental, Inc. whereby Interchem granted DEI an exclusive
world wide License for the promotion, use, sale, and distribution of Interchem's
"SoyClean" products. In addition the Company has entered into a two year
Consultancy Agreement with Interchem (N.A.) Industries, Inc. whereby in exchange
for consulting services the Company, beginning January 1, 1997, will pay a
monthly consulting fee to Interchem in the amount of $8333.33. Mr. Lee E. Derr,
a Director of the Company, is an officer and director of Interchem (N.A.)
Industries, Inc.
Interchem Environmental, Inc., a Shareholder of the Company, owns a
25% equity interest in Interwest LLC, an Iowa Limited Liability Company, which
owns the Ralston, Iowa production facility utilized in the manufacture of the
Company's "SoyClean" products. Interchem Environmental, Inc. has signed a
license agreement with the Company granting exclusive sales rights to all
"SoyClean" products worldwide. The agreement is for 25 years and given in
consideration for a royalty fee of one half of one percent (0.05) and the
transfer of 500,000 shares of common stock.
ITEM 8: DESCRIPTION OF SECURITIES
The Company is authorized to issue 20,000,000 shares of Common Stock.
$0.001 par value per share, 8,816,992 of which were issued and outstanding as of
September 30, 1996. No preferred stock is currently authorized. Each outstanding
share of Common Stock is entitled to one vote, either in person or by proxy, on
all matters that may be voted upon by the owners thereof at all meetings of the
stockholders. Stockholders of the Company have no rights to acquire additional
shares of Common Stock or any other of the Company's securities or shares of
issued and outstanding Common Stock are fully paid and non-assessable.
<PAGE>
The holders of common stock: (i) have equal ratable rights to
dividends from funds legally available therefor, when, and if declared by the
Board of Directors of the Company; (ii) are entitled to share ratably in all of
the assets of the Company available for distribution to holders of shares of
Common Stock upon liquidation, dissolution or winding up of affairs of the
Company; (iii) do not have preemptive, subscription, conversion or redemption
rights, or sinking fund provisions applicable thereto, and (iv) are entitled to
one non-cumulative vote per share on all matters on which stockholders may vote
on at all meetings of the stockholders.
On November 8, 1996, the Company's Board of Directors authorized a
reverse split of the shares of the Company's Common Stock. On November 27, 1996,
pursuant to Company By-laws, the Company held a special meeting of shareholders
to ratify an amendment to the Company's Articles of Incorporation reflecting the
reverse spilt, at a ratio of One (1) new share for each existing Six (6) shares,
of the then existing 8,816,992 issued and outstanding shares of Common Stock. As
a result of the One for Six reverse split 1,469,500 shares of Common Stock
remained issued and outstanding as post split shares prior to the issuance of
new shares associated with the acquisition of DEI. On October 21, 1996 the
Company issued 3,030,500 new shares of 144 Restricted Common Stock in
association with the acquisition of DEI resulting in a total of 4,500,000 shares
of Common Stock issued and outstanding.
Currently there are no shares of Preferred Stock authorized,
designated, issued or outstanding. In the future should the stockholders vote in
the affirmative to amend the Company's Articles of Incorporation to authorize
shares of Preferred Stock the Company's Board of Directors would be empowered to
designate classes of the Company's Preferred Stock and to establish relative
rights, preferences, qualifications and restrictions with regard to any
designated classes. The Company's Board of Directors has total discretion as to
the issuance and the determination of the rights and privileges of any shares of
Preferred or Common Stock which may be issued in the future, which rights and
privileges may be detrimental to the rights and privileges of the holders of the
existing shares of the Company's Common Stock now issued and outstanding.
Neither the Company's nor DEI's Charter and/or by-laws contain any
provisions that would delay, defer or prevent a change in control of the Company
or its subsidiary.
PART II
ITEM 1:
MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S EQUITY AND OTHER SHAREHOLDER
MATTERS
(A) Marketing Information: There is no established public trading
market for the Company's issued and outstanding Common Stock. In the near future
the Company intends to seek sponsorship of one or more NASD Member Registered
Securities Broker/Dealers and a quotation on The National Association of
Securities Dealers NASDAQ quotation system at the Bulletin Board level.
<PAGE>
Holders: The number of record holders of shares of the
Company's Common stock as of March 31, 1997 was 1121, inclusive of those
brokerage firms and/or clearing houses, if any, holding shares of the Company's
Common Stock for their clientele (with each such brokerage house and/or clearing
house, if any, being considered as one holder), The aggregate number of shares
of the Company's Common Stock issued and outstanding as of March 31, 1997 was
4,795,100. of this amount 3,030,500 new shares were issued during 1996 pursuant
to the acquisition of DEI and said shares are deemed "restricted securities" as
defined by Rule 144 of the Securities Act, as amended. As to the balance of
outstanding shares of the Company's Common Stock, 408,900 shares, are considered
to have been issued and outstanding for more than three years and may be sold or
otherwise transferred without restriction unless held by an affiliate or
controlling stockholder of the Company. Of these shares, the Company is not
aware of any held by Affiliates, Officers, or Directors of the Company or
beneficial interests thereof. The Company has no holders of Preferred Stock.
(C) Dividends: The Company has not paid or declared any dividends
upon its shares of Common Stock since its inception and, by reason of its
present financial status and its contemplated financial requirements, does not
contemplate or anticipate paying any dividends upon its shares of Common Stock
in the foreseeable future.
ITEM 2: LEGAL PROCEEDINGS
The Company is not presently a party to any litigation of any kind or
nature whosoever, nor to the Company's best knowledge and belief is any
litigation threatened or contemplated.
ITEM 3: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
From the inception of the Company until the acquisition of DEI its accountants
were Rotenberg Company, LLP 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 PLC 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.
ITEM 4: RECENT SALES OF UNREGISTERED SECURITIES
On May 29, 1996 the Company filed with the U.S. Securities and
Exchange Commission a Notice of Sale of Securities pursuant to Regulation "D",
Section 4 (6), Rule 504. The filing reported the exchange of 8,816,992 shares of
the Company's Common Stock. on the same date the Company also filed a Form 11
with the Department of Law of the State of New York.
On November 27, 1996 3,030,500 new restricted shares of the Company's
Common Stock were issued pursuant to a stock exchange agreement with the
shareholders associated with the acquisition of DEI. 2,530,500 restricted shares
were issued to existing shareholders of DEI and 500,000 new restricted shares
were issued to new stockholders as a result of an ongoing Private
<PAGE>
Placement of 500,000 shares of DEI common stock pursuant to Regulation "D" of
the Act. All 3,030,500 shares were unregistered and deemed "restricted
securities"' as defined by Rule 144 of the Securities Act, as amended. All
certificates representing the securities bear a restrictive legend preventing
their transfer except in accordance with the Securities Act, as amended, and the
regulations promulgated thereunder.
For each of the above transactions. the Company relied upon the
exemption from registration under the Securities Act of 1933, as amended (the
"Act"), as provided by Section 4(2) of the Act. With regard to the exchange of
existing and issuance of new shares totaling 3,591,100 shares of the Company's
Common Stock to the shareholders of DEI, the Company determined that each met
the standards of an "Accredited Investor" and were deemed to be "Sophisticated"
pursuant to the rules. In addition the DEI shareholders submitted to the Company
an "Investment Letter" for purposes of the exchange transaction.
The Company is currently in the process of organizing a "Private
Placement" of 1,350,000 Units at $1.50 per Unit in a limited offering made only
to "Accredited Investors" as defined in Regulation "D" under the Act. Each
Purchaser must execute a Subscription Agreement making certain representations
and warranties to the Company, including such Purchaser's qualifications as an
Accredited Investor. Each Unit consists of One Share of Common Stock and One
Redeemable Common Stock Purchase Warrant.
The Units to be offered will be on a "best efforts, 335,000 Units or
none" basis by the Company through its Officers and Directors who will not
receive any compensation in the form of commissions or finders' fees. Capital
West Investment Holding Company, a. shareholder of the Company, has been
engaged, through its affiliate Capital West Group, Inc., as a financial advisor
and is entitled to receive a Consulting fee of up to $200,000 as compensation
for its services to the Company, if all Units offered are sold. Units may also
be sold by NASD member Broker/Dealers who may receive commissions of up to 10%
of the price of the Units sold. If the minimum 335,000 Units are sold the
Company will net after selling commissions $452,250 and if all 1,350,000 Units
are sold the Company will net after selling commissions $1,822,500. A copy of
the offering memorandum is attached as an Exhibit hereto.
The Units are being offered in reliance upon exemptions from the
registration requirements of the Act, and other applicable state securities
laws. If the sale of Units, Shares, or Warrants fails to qualify for these
exemptions, purchasers may seek rescission of their purchases of such
securities. If a number of purchasers were to obtain rescission, the Company
would face significant financial demands which could adversely affect the
Company as a whole, as well as any nonrescinding purchasers.
As of March 31, 1997. The Company had sold 295,100 shares of common stock
pursuant to Regulation "D', Section 4 (6) , Rule 504. This offering was made
only to accredited investors and was made to only one investor. Through the
period March 31, 1997 an additional $295,100 was received by nature of
investment in Delta Environmental, Inc., the company acquired by Soy
Environmental Products, Inc. This was invested under Regulation "D", Section 4
(6), rule 504. This offering was made only to accredited investors and resulted
in investment by 22 stockholders. There have been no warrants exercised. All
shares were sold at a price of $1.00 per share.
<PAGE>
ITEM 5: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Delaware law and the Company's Certificate of
Incorporation, no director of the Company is personally liable to the company or
to the shareholders for monetary damages for any breach of fiduciary duty as a
direct of the Company. Nevertheless, a director is liable to the extent provided
by applicable law (i) for the breach of his or her duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit.
As permitted by the provisions of the Delaware General Corporation
Laws the Company has the power to indemnify individuals made a party to a
proceeding because they are or were a director, against liability incurred in
the proceeding, if such individuals acted in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interest of the
Company and, in a criminal proceeding, they had no reasonable cause to believe
their conduct was unlawful. The Company must indemnify a director or officer who
is successful on the merits or otherwise, in the defense of any proceeding, to
which they are a party because they are or were a director or officer of the
Company, against reasonable expenses incurred by them in connection with a
proceeding or claim with respect to which such individual has been successful.
The Company's Certificate of Incorporation empowers the Board of Directors to
indemnify its officers, directors, agents or employees against any loss or
damage sustained when acting in good faith in the performance of their corporate
duties.
The Company may pay for or reimburse expenses incurred by a director,
officer. employee, fiduciary, or agent of the Company who is a party to a
proceeding in advance of final disposition of the proceeding provided the
individual furnishes the Company with written affirmation that their conduct was
in good faith and in a manner reasonably believed to be in, or not opposed to,
the best interest of the Company, and to undertake to repay the advance if it is
ultimately determined that they did not meet such standard of conduct.
TRANSFER AGENT
The Company has designated OTR Inc., 317 South West Alder, Suite
1120, Portland, Oregon 97204, as its Registrar of Stock and Transfer Agent.
PART F/S
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Audited Financial Statements for the Company from the date of
inception, January 10, 1996, to September 30, 1996 have been examined to the
extent indicated in their reports by Rotenberg & Company, LLP, independent
certified public accountants. Also included are Audited Financial Statements for
Delta Environmental, Inc. from the date of inception, September 15, 1996, to
September 30, 1996 examined to the extent indicated in their reports by Semple &
Cooper PLC, independent certified public accountants. In addition, management
has prepared the unaudited financial statements for the 6 month period ended
March 31, 1997. All Financial Statements have been prepared in accordance with
generally accepted accounting principles. The aforementioned financial
statements are included herein in response to Item 15 of this Form 10-SB.
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
For The Six Month Period Ended
March 31, 1997
F-1
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
March 31, 1997
(Unaudited)
ASSETS
Current Assets:
Cash $ 5,130
Accounts receivable 2,550
Inventory 6,400
---------
Total Current Assets 14,080
---------
Investment (Note 5) 192,698
Goodwill, net (Note1) 44,702
organization costs, net (Note 1) 7,980
Licenses(Note 1) 5,000
---------
250,380
---------
Total Assets $ 264,460
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 40,167
Accrued Expenses 14,592
Notes Payable(Note) 50,000
---------
Total Current Liabilities 104,759
---------
Commitments: (Note 9) --
Stockholders' Equity:
Common stock, $.001 par value, 20,000,000 shares
authorized, 4,795,100 shares issued and outstanding 4,795
Additional paid-in capital 413,049
Accumulated deficit (258,143)
---------
Total Stockholders' Equity 159,701
---------
Total Liabilities and Stockholders' Equity $ 264,460
=========
Prepared by Management
The Accompanying Notes are an Integral Part of the Financial Statements
F-2
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
For The Six Month Period Ended March 31, 1997
(Unaudited)
Sales $ 8,179
Cost of Sales 3.906
-----------
Gross Profit 4,273
General and Administrative Expenses 197,754
-----------
Loss from Operations (193,481)
Miscellaneous Income 245
-----------
Net Loss $ (193,236)
===========
Loss per share (Note 1) $ (.04)
===========
Weighted average shares outstanding 4,795,100
===========
Prepared by Management
The Accompanying Notes are an Integral Part
of the Financial Statements
F-3
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For The Six Month Period Ended March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated Stockholders,
Shares Amount Capital Deficit Equity
------ ------ ------- ------- ---
<S> <C> <C> <C> <C> <C>
Balance at September
30, 1996 8,816,922 $8,817 $ -- $ -- $ 8,817
1 for 6 reverse
stock split (7,347,422) (7,347) 7,347 -- --
Reverse merger with
Delta
Environmental,
Inc. 3,030,500 3,030 182,520 (64,907) 120,643
Proceeds from
private offering,
net of costs of
$95,576 295,100 295 223,182 223,477
Net loss for the
six month period
ended March 31, 1997 (193,236) (193,236)
------------- ----------- ------------- ------------- -------------
Balance at
March 31, 1997 4,795,100 $4,795 $413,049 $ (258,143) $159,701
========= ====== ======== ========== ========
</TABLE>
Prepared by Management
The Accompanying Notes are an Integral Part of the Financial Statements
F-4
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Six Month Period Ended March 31, 1997
(Unaudited)
Reconciliation of Net Loss to Net Cash
Provided by Operating Activities:
Net Loss $(193,236)
---------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization 6,189
Reverse acquisition of subsidiary (99,360)
Changes in Assets and Liabilities:
Accounts receivable (2,550)
Inventory (6,400)
Accounts payable 40,167
Accrued Expenses 14,541
---------
(47,413)
---------
Net cash used by operating activities (240,649)
---------
Cash flows for investing activities:
Increase in investment (42,698)
---------
Net cash used by investing activities (42,698)
---------
Cash flows from financing activities:
Proceeds from issuance of stock 238,477
Proceeds from notes payable 50,000
---------
Net cash provided by financing activities 288,477
---------
Net increase in cash 5,130
Cash at beginning of period --
---------
Cash at end of period $ 5,130
=========
Prepared by Management
The Accompanying Notes are an Integral Part
of the Financial Statements
F-5
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
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.) is a Corporation which was duly formed and
organized under the laws of the State of Delaware on January 10, 1996.
The Company was in the development stage and had no activity from its
inception through October 21, 1996. The principal business purpose of
the Corporation is to engage in the development of, ownership of
interests in, and operation of biodegradable chemical facilities, and
to establish national sales and distribution networks for these
products.
During the six month period ended March 31, 1997, the Company changed
its name from Denom Acquisition Corp. to Soy Environmental Products,
Inc.
Principles of Consolidation:
The consolidated financial statements 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.
Goodwill:
Goodwill consists of costs incurred in relation to the purchase of the
corporate shell and will be amortized over a five (5) year period. The
Company evaluates the estimated net realizable value of its goodwill
at each balance sheet date and records an impairment if the carrying
value exceeds the expected future net operating cash flows from the
related operation. For the six month period ended March 31, 1997,
amortization expense in the amount of $5,301 was charged to
operations.
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 (5) year
period. For the six month period ended March 31, 1997, amortization
expense in the amount of $888 was charged to operations.
F-6
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Principles and Nature of Operations:
(Continued)
Interim Financial Information:
The interim financial statements for the six month period ended March
31, 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 six month period
ended March 31, 1997 are not necessarily indicative of the results for
the year ending September 30, 1997.
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.
License Fee:
The license fee consists of costs incurred in relation to the purchase
of a license to market certain chemical compounds for bioremediation
that are based upon soy product derivatives. The license will be
amortized ratably over a five (5) year period. The Company evaluates
the estimated net realizable value of its license fee at each balance
sheet date and records an impairment if the carrying value exceeds the
expected future net operating cash flows from the related operation.
For the six month period ended March 31, 1997, no amortization expense
was charged to operations.
Income Taxes:
For financial accounting and tax reporting purposes, the Company
reports revenues and expenses based on the accrual method of
accounting. For the period ended March 31, 1997, no provision has been
made for federal and state income taxes due to a net operating loss
during the period.
Deferred income taxes arise from timing differences resulting from
revenue and expenses reported for financial accounting and tax
reporting purposes in different periods. Deferred income taxes
represent primarily the tax benefit of the net operating loss
carry-forwards.
The company has established a valuation allowance in the approximate
amount of $61,950 to fully offset the deferred tax asset because, as a
result of its recent operating loss, in management's opinion, it is
more likely than not the Company's deferred tax asset will not be
realized.
Stock-Based Compansation
In 1996, the Company adopted for footnote disclosure purposes only,
SFAS No. 123, "Accounting for Stock-Based Compensation"), which
requires that companies measure the cost of stock-based employee
compensation at the grant date based on the value of the award and
recognize this cost over the service period. The value of the
stock-based award is determined using the intrinsic value method
whereby compensation cost is the excess of the market prices of the
stock at grant date or other measurement date over the amount an
employee must pay to acquire the stock.
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
ninety (90) percent of the outstanding common stock of Soy
Environmental Products, Inc. Approximately 1,060,600 shares of common
stock in the agreement were transferred directly from the stockholders
of Soy Environmental Products, Inc. to the stockholders of Delta
Environmental, Inc.
F-7
<PAGE>
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.
F-8
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Related Party Transactions:
Leasing Arrangements:
The Company leases office space under a month-to-month operating lease
agreement with Interchem Environmental, Inc. For the six month period
ended March 31, 1997, rental expense for the office lease was $24,508.
5. Investment:
The investment consists of approximately a twenty-five (25) percent
ownership interest in Interwest, L.C., an Iowa limited liability
company. The investment will be accounted for under the equity method,
however, as of March 31, 1997, no material activity had occurred.
6. Statement of Cash Flows:
Non-Cash Financing Activities:
For the six month period ended March 31, 1997, the Company recognized
financing activities that affected stockholders' equity, but did not
result in cash receipts.
As of March 31, 1997, these non-cash activities consisted of the
following:
Reverse acquisition of Delta Environmental, Inc.'s net assets
including cash, accounts receivable and accounts payable of $24,680,
$3,350, and $127,390, respectively, in exchange for 3,591,100 shares
of the Company's restricted common stock.
7. Economic Dependency:
The Company purchases substantially all of its supply of soybeans and
other materials from Interwest Cooperative, a 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 grant date. At March 31, 1997 there were 500,000
shares granted with no shares 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 six month
period ended March 31, 1997, would have been reduced to the pro forma
amoounts presented below:
Net Loss
As reported $ 193,236
Pro Forma $ 263,236
Loss per share
As reported $ .04
Pro Forma $ .05
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 options
of two (2) years, risk-free interest rates of eight percent (8%), and
a zero percent (0%) dividend yield.
F-9
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 (.005%) of gross
sales. In exchange for the licensing agreement, Interchem
Environmental, Inc. received 500,000 shares of Delta Environmental,
Inc. stock. Consulting Agreement:
On January 1, 1997, the Company entered into a consulting agreement
with Interchem Industries, Inc., a related entity. The agreement is
for a two (2) year period, with a total commitment of $175,000.
10. Note Payable:
As of March 31, 1997 the note payable consists of a 90 day promissory
note payable to an individual with interest at the rate of nine (9)
percent per annum, unsecured.
11. Subsequent Event:
Subsequent to the balance sheet date, the Company intends to initiate
a private placement pursuant to Regulation D promulgated by the
Securities and Exchange Commission. The proposed private placement
will offer for sale 1,350,000 units, each consisting of one (1) share
of common stock, and one (1) redeemable common stock purchase warrant
at $1.50 per unit.
F-10
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. 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 said 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.
F-11
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Historical Historical Proforma Proforma
Soy Delta(l) Entries Consolidated
----------- --------- -------- ------------
<S> <C> <C>
Sales $8,179 $8,179
Cost of Sales 3,906 3,906
---------- --------- ----------
Gross Profit 4,273 - 4,273
General and Administrative
Expenses 197,754 29,181 (2) 555 227,490
---------- --------- ----------
Loss from Operations (193,481) (29,181) (223,217)
Miscellaneous Income 245 245
---------- --------- ----------
Net Loss $(193,236) $ (29,181) $(222,972)
======== ====== =======
</TABLE>
(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.
(2) To record amortization of the goodwill.
F-12
<PAGE>
DELTA ENVIRONMENTAL, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
For The Period From The Date of Inception, September 15, 1996
Through September 30, 1996
F-13
<PAGE>
To The Stockholders and Board of Directors of
Delta Environmental, Inc. (A Development Stage Company)
We have audited the accompanying balance sheet of Delta Environmental, Inc. (A
Development Stage Company) as of September 30, 1996, and the related statements
of operations, stockholders' equity and cash flows for the period from the date
of inception, September 15, 1996 through September 30, 1996. The financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Delta Environmental, Inc. (A
Development Stage Company) as of September 30, 1996, and the results of its
operations, and its cash flows for the period from the date of inception,
September 15, 1996 through September 30, 1996, in conformity with generally
accepted accounting principles.
/s/ Semple & Cooper P.L.C.
Phoenix, Arizona
December 31, 1996
F-14
<PAGE>
DELTA ENVIRONMENTAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
September 30, 1996
ASSETS
Current Assets:
Cash $ 21,512
---------
Total Current Assets 21,512
---------
Investment (Note 4) 150,000
License Fee (Notes 1 and 7) 5,000
Deposit (Note 8) 5,003
---------
160,003
---------
Total Assets $ 181,515
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable (Note 4) 56,741
---------
Total Current Liabilities 56,741
---------
Commitments: (Notes 3 and 7)
Stockholders' Equity: (Note 6)
Common stock, $.0l par value, 10,000,000 shares
authorized, 3,645,000 shares issued and
outstanding 36,450
Additional paid-in capital 129,050
Accumulated deficit (40,726)
---------
Total Stockholders' Equity 124,774
---------
Total Liabilities and Stockholders' Equity $ 181,515
=========
The Accompanying Notes are at Integral Part
of the Financial Statements
F-15
<PAGE>
DELTA ENVIRONMENTAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
For The Period From The Date of Inception,
September 15, 1996 Through September 30, 1996
Revenues $ --
General and Administrative Expenses (40,726)
----------
Net Loss $ (40,726)
=========
The Accompanying Notes are an Integral Part
of the Financial Statements
F-16
<PAGE>
DELTA ENVIRONMENTAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
For The Period From The Date of Inception,
September 15, 1996 Through September 30, 1996
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance at September
15, 1996 -- $ -- $ -- $ -- $ --
Stock issued for
consulting services
and license fee 3,500,000 35,000 -- -- 35,000
Proceeds from private
offering, net of
costs of $14,500 145,000 1,450 129,050 -- 130,500
Net loss -- -- -- (40,726) (40,726)
--------- ---------- ---------- ---------- ----------
Balance at September
30, 1996 3,645,000 $ 36,450 $ 129,050 $ (40,726) 124,774
========= ========== ========= ========= =======
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
F-17
<PAGE>
DELTA ENVIRONMENTAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
For The Period From The Date of Inception,
September 15, 1996 Through September 30, 1996
Reconciliation of Net Loss to Net Cash
Provided by Operating Activities:
Net Loss $(40,726)
----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Stock issued for consulting fees 30,000
Changes in Assets and Liabilities:
Accounts payable 56,741
----------
86,741
----------
Net cash provided by operating activities 46,015
----------
Cash flows from investing activities:
Purchase of investments (150,000)
Disbursements for deposit (5,003)
----------
Net cash used for investing activities (155,003)
----------
Cash flows from financing activities:
Proceeds from issuance of stock 130,500
----------
Net cash provided by financing activities 130,500
----------
Net increase in cash 21,512
Cash at beginning of period
----------
Cash at end of period 21,512
======
The Accompanying Notes are an Integral Part
of the Financial Statements
F-18
<PAGE>
DELTA ENVIRONMENTAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Principles and Nature of operations:
Nature of Corporation:
Delta Environmental, Inc. is a Corporation which was duly formed and
organized under the laws of the State of Delaware on October 1, 1996.
The Company has been in the development stage since its inception. The
principal business purpose of the Corporation is to engage in the
development of, ownership of interests in, and operation of
biodegradable chemical facilities, and to establish national sales and
distribution networks for these products.
The accompanying financial statements reflect the activity of the
business since its inception, September 15, 1996, although the formal
incorporation was not recorded until October 1, 1996.
License Fee:
The license fee consists of costs incurred in relation to the purchase
of a license to market certain chemical compounds for bioremediation
that are based upon soy product derivatives (See Note 7). The license
will be amortized ratably over a five (5) year period. The Company
evaluates the estimated net realizable value of its license fee at each
balance sheet date and records an impairment if the carrying value
exceeds the expected future net operating cash flows from the related
operation. For the period from the date of inception, September 15,
1996, through September 30, 1996, no amortization expense was charged
to operations.
Income Taxes:
For financial accounting and tax purposes, the Company reports revenues
and expenses based on the accrual method of accounting. For the period
ended September 30, 1996, no provision has been made for federal and
state income taxes due to a net operating loss during the period.
Deferred income taxes arise from timing differences resulting from
revenue and expenses reported for the financial accounting and tax
reporting purposes in different periods. Deferred income taxes
represent primarily the tax benifit of the net operating loss
carryforwards.
The Company has established a valuation allowance in the approximate
amount of $9,700 to fully offset the deferred tax asset because, as a
result of its recent operating loss, in management's opinion, it is
more likely than not the Company's deferred tax asset will not be
realized.
2. 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.
3. Related Party Transactions:
The Company leases office space for approximately $4,500 per month
under a month-to-month operating lease agreement with Interchem
Environmental, Inc., a related entity. For the period from the date of
inception, September 15, 1996 through September 30, 1996, rental
expense for the office lease was $2,228.
F-19
<PAGE>
DELTA ENVIRONMENTAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - (Continued)
4. Investment:
The investment consists of approximately a twenty-five (25) percent
interest in Interwest, L.C., an Iowa limited liability company. The
investment will be accounted for under the equity method, however, as
of September 30, 1996 no material activity had occurred. As of December
31, 1996, the Company has recorded a payable due in relation to the
investment in the amount of $26,000.
5. Statement of Cash Flows:
Non-Cash Financing Activities:
For the period from the date of inception, September 15, 1996 through
September 30, 1996, the Company recognized financing activities that
affected stockholders' equity, but did not result in cash receipts.
As of September 30, 1996, these non-cash activities consisted of the
following:
3,500,000 shares of common stock were issued in exchange for consulting
fees and a license fee valued in the amounts of $30,000 and $5,000,
respectively.
6. Private Placement:
During the period ended September 30, 1996, the Company initiated a
private placement pursuant to Regulation D promulgated by the
Securities and Exchange Commission. The private placement offered for
sale 500,000 shares of $.0l par value common stock at $1.00 per share.
As of the balance sheet date the Company had sold 145,000 shares
through the private offering of which the proceeds, net of brokerage
commissions were $130,500.
7. Commitments:
License Fee:
On September 15, 1996, the Company 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 (.005%) of gross sales and has a
duration of twenty-five (25) years. In exchange for the licensing
agreement, Interchem Environmental, Inc. received 500,000 shares of the
Company's $.0l par value common stock.
F-20
<PAGE>
DELTA ENVIRONMENTAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - (Continued)
8. Subsequent Events:
On October 21, 1996, all of the Company's outstanding common stock was
exchanged for 3,760,600 restricted shares of Soy Environmental
Products, Inc. (formerly Denom Acquisition Corp.) in a reverse merger.
The stockholders of Delta Environmental, Inc. received approximately
ninety (90) percent of the outstanding common stock of Soy
Environmental Products, Inc. after the merger. In addition, Delta
Environmental, Inc. agreed to pay approximately $50,000 to a business
broker. As of September 30, 1996, approximately $5,000 of the
acquisition fee had been placed on deposit.
F-21
<PAGE>
DENOM ACQUISITION CORP.
(A DELAWARE CORPORATION) \
ROCHESTER, NEW YORK
TABLE OF CONTENTS
-----------------
Independent Auditor's Report 1
Balance Sheet at September 30, 1996 2
Statement of Stockholders' Equity for the Period 3
January 10, 1996 (Date of Inception) to September 30, 1996
Notes to Financial Statements 4
F-22
<PAGE>
Rotenberg & Company, LLP
- ------------------------
Certified Public Accountants & Consultants
- ------------------------------------------
500 First Federal Plaza * Rochester, N.Y. 14614
- -----------------------------------------------
(716) 546-1158 Fax (716) 546-2943
- -------------- ------------------
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Stockholders
Denom Acquisition Corp.
Rochester, New York
We have audited the accompanying balance sheet of Denom Acquisition
Corp. (a Delaware Corporation) as of September 30, 1996, and the related
statement of stockholders' equity for the period January 10, 1996 (date of
inception) to September 30,1996. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet and statement of
stockholders' equity are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the balance sheet and statement of
stockholders' equity. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the balance sheet and statement of stockholders'
equity present fairly, in all material respects, the financial position of Denom
Acquisition Corp. as of September 30, 1996, in conformity with generally
accepted accounting principles.
Rotenburg & Company, LLP
Rochester, New York
October 4, 1996
F-23
<PAGE>
DENOM ACQUISITION CORP.
(A Delaware Corporation)
Rochester, New York
BALANCE SHEET AT SEPTEMBER 30, 1996
----------------------------------
ASSETS
Cash and Cash Equivalents $ --
Accounts Receivable --
Marketable Securities --
Inventory --
Organizational Expense 8,817
Start-Up Costs 50
------
Total Assets $8,867
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
- ----------
Accounts Payable $ --
Accrued Expense --
Customer Deposits and Advances --
Delaware Franchise Taxes Payable and Accrued 50
------
Total Liabilities $ 50
------
Stockholders' Equity
- -----------------
Common Stock: $.001 Par; 20,000,000 Shares Authorized, 8,817
8,816,992 Shares Issued and Outstanding --
Additional Paid in Capital --
Retained Earnings --
------
Total Stockholders' Equity $8,817
------
Total Liabilities and Stockholders' Equity $8,867
======
The Accompanying Notes are an integral part of this financial statement and
should be read in conjunction therewith.
F-24
<PAGE>
DENOM ACQUISITION CORP.
(A Delaware Corporation)
Rochester, New York
STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD
------------------------------------------------
JANUARY 10, 1996 (DATE OF INCEPTION) TO SEPTEMBER 30, 1996
----------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Number Par Common Paid In Retained Stockholders'
of Shares Value Stock Capital Earnings Equity
--------- ------ ------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 10, 1996 --- $ --- $ --- $ --- $ --- $ ---
Common Stock Issued on January 12, 1996 8,816,992 .001 8,817 --- --- 8,817
Net Income for the Period January 10,
1996 to September 30, 1996 --- --- --- --- --- ---
Distribution - May 27, 1996 --- --- --- --- --- ---
---------- ------- ------- ------ ------- -------
Balance - September 30, 1996 8,816,992 $ .001 $ 8,817 $ --- s --- $ 8,817
========= ====== ======= ==== =======
</TABLE>
The accompanying notes are an integral part of this financial statement and
should be read in conjunction therewith,
F-25
<PAGE>
DENOM ACQUISITION CORP.
(A Delaware Corporation)
Rochester, New York
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Note A - Summary of Significant Accounting Policies
- ---------------------------------------------------
Method of Accounting
--------------------
The corporation maintains its books and prepares its financial
statements on the accrual basis of accounting.
Note B - Scope of Business
- --------------------------
The corporation was formed on January 10, 1996 under the laws of
the State of Delaware. The corporation has been inactive since its
formation and has never conducted any business.
Note C - Organization Expenses
- ------------------------------
Organizational expenses represent management, consulting, legal,
accounting, and filing fees, incurred to date in the formation of
the corporation.
Note D - Delaware State Franchise Taxes Payable and Accrued
- -----------------------------------------------------------
All corporations formed under Delaware state law, whether active
or inactive, are subject to annual minimum Delaware State franchise
taxes and filing fees. The corporation has provided for these costs
for the period January 10, 1996 through September 30, 1996 and are
included in start-up costs.
Note E - Issuance of Common Stock
- ---------------------------------
On January 12, 1996, the corporation issued 8,816,992 shares of
its common stock to Denom Holding Company (the former stockholders
of Cactus Patch Farms Inc.) in exchange for all of its assets for
and in consideration of Denom Holding Company funding certain legal
and other expenses of the corporation.
A summary of the assigned fair value of the assets received in
exchange for the corporation's common stock follows:
Various Stock Securities $ ---
Organization Expenses of Forming,
the Corporation (See Note C) 8,817
Total $8,817
Note F - Distribution to stockholders
-------------------------------------
On May 27, 1996, the corporation transferred all of its tangible
assets (stock securities) to ERR Holding Company for the benefit of
stockholders of record as of May 20, 1996, for and in consideration
of ERR Holding Company funding certain legal and other expenses of
the corporation. Said stock securities had no carrying value on the
corporate books and had no ascertainable fair value at the date of
the distribution.
F-26
<PAGE>
PART III
ITEM I: INDEX TO EXHIBITS
The following exhibits are filed with this Registration Statement:
EXHIBIT NUMBER EXHIBIT NAME
1 CERTIFICATE OF INCORPORATION OF SOY ENVIRONMENTAL PRODUCTS,
INC., FORMERLY DENOM ACQUISITION CORP.
2 CERTIFICATE OF INCORPORATION OF DELTA ENVIRONMENTAL, INC.
3. CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF
SOY ENVIRONMENTAL PRODUCTS, INC., FORMERLY DENOM ACQUISITION
CORP.
4. BY-LAWS OF SOY ENVIRONMENTAL PRODUCTS, INC., FORMERLY DENOM
ACQUISITION CORP.
5. BY-LAWS OF DELTA ENVIRONMENTAL, INC.
6. AGREEMENT AND PLAN OF REORGANIZATION DATED SEPTEMBER 3, 1996
BY AND BETWEEN SOY ENVIRONMENTAL PRODUCTS, INC., FORMERLY
DENOM ACQUISITION CORP. AND THE SHAREHOLDERS OF DELTA
ENVIRONMENTAL, INC.
7. LICENSE AGREEMENT DATED SEPTEMBER 15, 1996 BY AND BETWEEN
INTERCHEM ENVIRONMENTAL, INC. AND DELTA ENVIRONMENTAL, INC.
8. COPY OF REGULATION "D" FILING WITH THE SECURITIES AND EXCHANGE
COMMISSION DATED MAY 29, 1996.
9. COPY OF FORM M-11 FILED WITH THE SATE OF NEW YORK, DEPARTMENT
OF LAW, DATED, MAY 29, 1996.
10. LETTERS OF PERMISSION BY CERTIFIED PUBLIC ACCOUNTANTS.
11. COPY OF CURRENT PRIVATE PLACEMENT MEMORANDUM
SUPPLEMENTAL EXHIBITS
12. COPY OF TESTING REPORT BY U. S. ARMY
<PAGE>
13. COPY OF TESTING DATA BY ARCO CHEMICAL
14. EMPLOYMENT AGREEMENT OF SEAN LEE
ITEM 2: DESCRIPTION OF EXHIBITS
See Item 1, Part III above.
<PAGE>
SIGNATURES
In accordance with section 12 of the Securities Exchange Act of 1934,
the Company Caused this registration statement to be signed on its behalf by the
undersigned, thereto duly authorized in the City of Phoenix, State of Arizona on
the 28 day of May 28, 1997
SOY ENVIRONMENTAL PRODUCTS, INC.
BY:/s/ Sean F. Lee Dated: May 28, 1997
-----------------------------
SEAN F. LEE, CHAIRMAN & CEO
PSCC PROJECT REPORT
TE-LS-58-95 SEPTEMBER 1995
EVALUATION OF SOYBEAN-DERIVED INDUSTRIAL
SOLVENT FOR THE U.S. ARMY TANK-AUTOMOTIVE
AND ARMAMENT COMMAND
[LOGO]
5249
PREPARED BY:
U.S. ARMY MATERIAL COMMAND LOGISTICS SUPPORT ACTIVITY
PACKAGING, STORAGE, AND CONTAINERIZATION CENTER
11 HAP ARNOLD BOULEVARD
TOBYHANNA, PENNSYLVANIA 18466-5097
EXHIBIT 12
<PAGE>
ABSTRACT
The U.S. Army Tank-Automotive and Armament Command (TACOM) requested evaluation
of a new, soybean-derived, industrial strength solvent for use in military
vehicle degreasing operations. This material is biodegradable, nontoxic, and
nonirritating on skin contact. TACOM received a sample of this material as part
of the Advanced Renewable Resources Program in a cooperative effort with the
Natick Research, Development, and Engineering Center under sponsorship of the
Department of Agriculture. TACOM asked the Logistics Support Activity,
Packaging, Storage, and Containerization Center (LOGSA PSCC) to evaluate this
cleaner for corrosion and cleaning efficiency in order to determine if this
material can be used as a substitute material in degreasing operations. The
material was also evaluated to determine if it has any corrosion protection
properties. Results show that this material is an acceptable substitute for
current degreasers used in military vehicle degreasing operations. However, the
results also show that this material does not have any corrosion protection
properties.
- --------------------------------------------------------------------------------
Reviewed by: Approved By:
/s/ Robert McGill /s/ O.L. Lollis
ROBERT McGILL O.L. LOLLIS
Chief, Engineering and Chief
Laboratory Division LOGSA Packaging, Storage,
LOGSA Packaging, Storage, and Containerization Center
and Containerization Center
<PAGE>
U.S. ARMY MATERIAL COMMAND
LOGISTICS SUPPORT ACTIVITY
PACKAGING, STORAGE, AND CONTAINERIZATION CENTER
TOBYHANNA, PA 18466-5097
EVALUATION OF SOYBEAN-DERIVED INDUSTRIAL SOLVENT FOR THE
U.S. ARMY TANK-AUTOMOTIVE AND ARMAMENT COMMAND
LOGSA PSCC Project Report TE-LS-58-95
ARTHUR S. MIEKOWSKI
Chemist
JOHN S. DOMIN
Engineering Technician
September 1995
<PAGE>
CONTENTS
Paragraph Page
--------- ----
Introduction ................................................. 1 1
Discussion ................................................... 2 1
Conclusions .................................................. 3 3
Recommendation ............................................... 4 3
Keyword Identifiers........................................... 5 3
Distribution List ............................................ 6 4
<PAGE>
1. Introduction. The Engineering and Testing Branch, Engineering and Laboratory
Division of the LOGSA PSCC conducted a series of tests on a soybean-derived
industrial solvent for TACOM. The purpose of this study was to determine if this
cleaner can be used in military vehicle degreasing operations. The use of this
material would greatly reduce chlorinated hydrocarbon emissions, a well as the
amount of hazardous waste generated by Department of Defense (DOD) activities.
This material is biodegradable by nature and is, therefore, environmentally
friendly. The tests conducted were corrosion, cleaning efficiency, and salt
spray. The salt spray test was conducted to determine if this material has any
inherent corrosion protection properties.
2. Discussion. a. Background. Both the corrosion and cleaning efficiency tests
were conducted using sample metal panels of aluminum, brass, copper, and steel.
Since this cleaner was immiscible in water, no dilution was required to perform
the corrosion and cleaning efficiency tests. The salt spray test was performed
on 2-inch by 4-inch, cold rolled, steel panels coated with the cleaner.
(1) Corrosion Test. One sample of each metal was polished with
600-grit silicone carbide paper on a metallographic grinding and polishing
wheel. The polished samples were then immersed in a beaker of cleaner. Solution
temperatures for this test ranged from 25(degree)C (77(degree)F) to 75(degree)C
(167(degree)F), in 10(degree)C (18(degree)F) increments. Each of the samples was
immersed at each temperature gradient for 6 hours with constant agitation at 250
revolutions per minute (rpm) using a programmable, hot plate stirrer. All
samples were then rinsed with hot water and examined for signs of tarnish and
corrosion.
(2) Cleaning Efficiency Test. One sample of each metal was
polished with 600-grit silicone carbide paper on a metallographic grinding and
polishing wheel and then coated with approximately 0.4 - 0.5 grams of
MIL-G-10924 heavy grease as the test soil. Samples were then immersed, as with
the corrosion testing, except that all samples were agitated at 300 rpm, and the
time required for the removal of the grease was recorded. The temperature range
used was the same as that of the corrosion test.
(3) Salt Spray Corrosion Test. Six samples of SAE-1010 cold
rolled steel were coated by dipping the samples in the cleaner. The samples were
then exposed to 5 percent salt fog at a temperature of 95(degree)F and a
relative humidity of 95 percent. The samples were then tested to failure and the
time required to failure recorded.
<PAGE>
b. Test Results. Laboratory testing of the cleaner provided the
following result:
(1) Corrosion Test. Table 1 shows the corrosion test results
obtained after placing the test panels in the cleaner. The cleaner showed no
adverse effects on either the aluminum, brass, copper, or steel panels after
immersion of these metals in the cleaner for 6 hours. Since this cleaner was
organic in nature, no water came in contact with the test panels until after
being rinsed with water. As a result of this, the metals did not corrode.
Table 1. Corrosion Test Results
Solution Temperature (degree)C ((degree)F)
Metal 25 (77) 35 (95) 45 (113) 55 (131) 65 (149) 75 (167)
Aluminum 0 0 0 0 0 0
Brass 0 0 0 0 0 0
Copper 0 0 0 0 0 0
Steel 0 0 0 0 0 0
Grading Scale: 0 - No tarnish or corrosion
1 - Slight tarnish
2 - Heavy tarnish
3 - Slight corrosion
4 - Heavy corrosion
(2) Cleaning Efficiency Test. Table 2 shows the cleaning
efficiency results obtained with the cleaner. Table 2 shows that the time
required to remove soil from the panels decreases with increased temperatures.
The time required to remove soil is longer than that of current degreasers.
However, this only applies at room temperature. At higher temperatures, this is
not the case. It can be seen that by raising the temperature 10(degree)C
(18(degree)F), the time required to remove the soil is reduced by about half.
This factor alone favors the use of this degreaser at higher temperatures. The
other factor that contributes to this is that this solvent is organic based and
is able to clean organic greases much more readily than a water-based cleaner.
2
<PAGE>
Table 2. Cleaning Efficiency Test Results
Cleaning Efficiency (minutes)
Solution Temperature (degree)C ((degree)F)
Metal 25 (77) 35 (95) 45 (113) 55 (131) 65 (149) 75 (167)
Aluminum 120 60 30 20 10 5
Brass 120 60 30 20 10 5
Copper 120 60 30 15 10 5
Steel 120 60 30 15 10 5
(3) Salt Spray Corrosion Test. Corrosion protection of the
cleaner was evaluated per ASTM B 117 (Standard Test method of Salt-Spray (Fog)
Testing). Six coated panels and an uncoated panel were placed in the salt-spray
chamber at a temperature of 35(degree)C (95(degree)F) and a relative humidity of
95 percent. The coated panels failed after approximately 100 hours of exposure.
3. Conclusions.
a. This cleaner can be used as a substitute for current degreasers in
military vehicle degreasing operations for the removal of light to heavy greases
and oils. Increased temperatures result in a better cleaning efficiency allowing
the cleaner to remove extremely heavy greases and oils. However, because of its
low vapor pressure (less than 1 mm Hg at 72(degree)C (162(degree)F), it cannot
be used as a vapor degreaser in these applications.
b. A longer time is required for this cleaner to provide the same
cleaning efficiency as presently obtained with current degreasers.
c. This cleaner is not to be used as a preservative oil, since it
provides little protection for the metal part.
d. This cleaner will perform best at temperatures higher than
35(degree)C (95(degree)F).
4. Recommendation. This degreaser is recommended for use as a solvent degreaser
in military vehicle degreasing operations.
5. Keyword Identifiers. Cleaning compounds, cleaning efficiency, cleaners,
corrosion, degreasers, soybean derived, testing.
3
<PAGE>
6. Distribution List. This report is available to qualified requesters from --
Chief
LOGSA Packaging, Storage,
and Containerization Center
ATTN:: AMXLS-TE-E
11 Hap Arnold Boulevard
Tobyhanna, PA 18466-5097
Copies of this report have been sent to --
Number of Copies
----------------
Commander 3
U.S. Army Tank-Automotive and Armaments
Command
ATTN: AMSTRA-TR-T
Warren, MI 48397-5000
Commanding General 1
Marine Corps Logistics Base
ATTN: Code 87
Albany, GA 31704-5000
Commander 1
U.S. Army Communications -
Electronics Command
ATTN: AMSEL-LC-MMD-P
Fort Monmouth, NJ 07703-5000
Commander 1
U.S. Army Missile Command
ATTN:: AMSM-LC-MM-DP/-DT
Redstone Arsenal, AL 35898-5239
General Services Administration 1
Federal Supply Services Customer
Service Representative
Building 54-4, Room B-1
New Cumberland, PA 17070-5034
Commanding Officer 1
Naval Air Development Center
ATTN: Code 60611
Warminister, PA 18974-5000
Commander 1
U.S. Army Aviation and Troop Command
ATTN: AMSAT-I-SDP
4300 Goodfellow Boulevard
St. Louis, MO 63120-1798
4
<PAGE>
Number of Copies
----------------
Director 1
U.S. Army Defense Ammunition
Center and School
ATTN: SMCAC-DE
Savanna, IL 61074-9639
Commander 1
U.S. Army Armament Research,
Development, and Engineering
Center
ATTN: SMCAR-AEP
Picatinny Arsenal
Dover, NJ 07806-5000
Commander 1
U.S. Army Belvoir Research,
Development, and Engineering
Center
ATTN: STRBE-VK
Fort Belvoir, VA 22060-5606
Commander 1
U.S. Army Armament, Munitions,
and Chemical Command
(Benet Laboratories)
ATTN: SMCAR-CCB-SS
Building 40
Watervliet, NY 12189-4050
Director 1
U.S. Army Materials Technology
Laboratory
ATTN: SLCMT-MEE
Watertown, MA 02171-0001
Commander 1
U.S. Army Edgewood Research,
Development, and Engineering Center
ATTN: SCBRD-ENE-S
Aberdeen Proving Ground
Aberdeen, MD 21010-5423
Commander 1
U.S. Army Natick, Research,
Development, and Engineering Center
ATTN: STRNC-WTC
Natick, MA 01760-5018
5
<PAGE>
Number of Copies
----------------
Dean 1
School of Military Packaging
Technology
ATTN: AMXMC-SMPT-T/A
Aberdeen Proving Ground
Aberdeen, MD 21005-5001
Chief 1
Air Force Packaging Technology and
Engineering Facility
ATTN: AFMC-LSO/LOP
5215 Thurlow Street
Wright-Patterson AFB, OH 45433-5540
Commander 1
Defense AMMOLOG Activity
ATTN: AMSTRA-AR-AL
Picatinny Arsenal, NJ 07806-5000
Defense Logistics Agency 1
Operations Support Office
ATTN: DOSO-DEB
Richmond, VA 23297-5083
Headquarters 1
Defense Logistics Agency
ATTN: DLA-OWP
Alexandria, VA 22304-6100
Commander 1
Defense Distribution Region East
New Cumberland Site
ATTN: DDRE-T
New Cumberland, PA 17071-5001
Commander 1
Defense Distribution Region West
Tracy Site
ATTN: DDRW-T
Stockton, CA 95296-0100
Commander 1
Naval Sea Systems Command
ATTN: (SEA) 5143
Washington, DC 20362-5101
6
<PAGE>
Number of Copies
----------------
Commander 1
Naval Supply Systems Command
ATTN: (SUP) 0611F
Washington, DC 20376-5000
Commanding Officer 1
Fitting Out Supply Support
Assistance Center
Code 0624, P.O. Box 15129
Norfolk, VA 23511-0129
Commanding Officer 1
Naval Air Engineering Center
ATTN: (SESD) Code 5314
Lakehurst, NJ 08733-5100
Commanding Officer 1
Naval Construction Battalion Center
ATTN: Code 1564/4B
Port Hueneme, CA 93043-5000
Commanding Officer 1
U.S. Naval Weapons Station Earle
Colts Neck, NJ 07722-5000
Commandant of the Marine Corps 1
HQ, U.S. Marine Corps.
ATTN: Code LPP-2
Washington, DC 20380-0001
Commanding Officer 1
1ST SUP BN, FSSG
Preservation, Packaging, and
Packing (P3)
ATTN: Mr. Watson
Camp Pendleton, CA 92055-5606
Commander 1
U.S. Army Research, Development,
and Engineering Center
ATTN: SMCAR-ESK
Rock Island, IL 61299-7300
Commander 1
U.S. Army Natick Research, Development,
and Engineering Center
ATTN: STRNC-ES
Natick, MA 01760-5014
7
technical data logo ARCO CHEMICAL COMPANY
3801 WEST CHESTER PIKE
NEWTOWN SQUARE, PA 19073
215-359-2000
- --------------------------------------------------------------------------------
NMP-T / Ester Graffiti Removers
-------------------------------
High Performance and Flash Point
--------------------------------
NMP-T Graffiti Removal Score Overall SETA Flash
Co-Solvent Black Silver Score (Degrees F)
---------- ----- ------ ----- -----------
DPMA 5.0 5.0 10.0 182
Methyl Soyate 5.0 5.0 10.0 204
DBE 5.0 5.0 10.0 182
Aromatic 150 5.0 5.0 10.0 133
IPA 5.0 5.0 10.0 80
Terpene 4.9 5.0 9.9 140
PC 5.0 2.0 7.0 178
PG 5.0 0.0 5.0 206
Test Method: We sprayed silver and black Krylon(R)paint on aluminum
panels coated with a white, 2-part epoxy polyamide paint.
The spray paint was allowed to dry 1 hour and the panels
were then treated with the NMP-T/solvent blends listed
above. All the formulations contained 26 wt % NMP-T, 2%
surfactant, 1.5% thickener, 0.5% antioxidant, and the
cosolvent. The solutions were left on the panels 5 minutes
and rinsed with water. Each formulation was given a
graffiti removal score from 0 to 5 for each paint, with 5
indicating complete removal.
- --------------------------------------------------------------------------------
August 1994
The information in this bulletin is believed to be accurate and current as of
the date of this publication. It is the sole responsibility of the customer to
determine whether the product is appropriate and suitable for customer's
specific use. The applicable Material Safety Data Sheet and Product Storage and
Handling Practices Guide should be reviewed by customer before handling the ARCO
Chemical product. ARCO Chemical disclaims any liability against infringement of
any patent of customer's use of any of ARCO Chemical Company products in
combination with other materials or in any process.
ARCO Chemical
EXHIBIT 13
<PAGE>
Graffiti Removal with NMP-T Blends
Effect of the Diluent on Performance and Flammability
Substrate: Epoxy-polyamide painted panels.
Graffiti: Krylon black and silver spray paints.
NMP-T Paint Removal Score Overall SETA Flash
Diluent Black Silver Score Blend F
Methyl Soyate 5.0 5.0 10.0 204
DPMA 5.0 5.0 10.0 182
DBE 5.0 5.0 10.0 182
Aromatic 150 5.0 5.0 10.0 133
IPA 5.0 5.0 10.0 80
Glidsol 180 4.9 5.0 9.9 140
PC 5.0 2.0 7.0 178
PG 5.0 0.0 5.0 206
Test Method: We sprayed 4x8 in. aluminum panels coated with a white,
2-part epoxy polyamide paint. The paints were allowed to
dry for 1 hour and the panels were then treated with the
NMP/solvent (25/69) blend also containing 2% Triton -100
surfactant, 2% sodium borohydride preservative, and 1%
Klucel-H thickener. We left the blends on the panels for 5
minutes, then rinsed them with water. We then noted the
removal score for each paint with 5 = total removal and 0
= no paint removed. The overall score is the sum of the
two scores.
The information in this bulletin is believed to be accurate and current as of
the date of this publication. It is the sole responsibility of the customer to
determine whether the product is appropriate and suitable for customer's
specific use. The applicable Material Safety Data Sheet and Product Storage and
Handling Practices Guide should be reviewed by customer before handling the ARCO
Chemical product. ARCO Chemical disclaims any liability against infringement of
any patent of customer's use of any of ARCO Chemical Company products in
combination with other materials or in any process.
ARCO Chemical Company 800-321-7000
<PAGE>
Permanent Ink Graffiti Removal
NMP / Solvent Synergies
Graffiti Ink Removal Score Average Score
Remover Green Blue Black Red Score
NMP/DPMA 3.0 5.0 4.5 3.0 3.9
NMP/SoyClean 3.0 4.5 4.0 3.0 3.6
NMP-T 3.0 5.0 2.0 3.0 3.3
NMP/PC 2.0 5.0 3.0 3.0 3.3
NMP/PG 2.0 5.0 3.0 3.0 3.3
NMP/GBL 2.0 5.0 3.0 3.0 3.3
GBL 2.0 5.0 2.0 3.0 3.0
NMP/TPM 1.0 5.0 3.0 1.0 2.5
TPM 2.0 4.0 2.0 .0 2.5
PC 3.0 3.0 1.0 2.0 2.3
Aromatics 3.0 2.0 2.0 1.0 2.0
DPMA 1.0 1.0 1.0 1.0 1.0
SoyClean 0.0 0.0 0.0 0.0 0.0
Test Method: We marked aluminum panels coated with a white, 2-part
epoxy polyamide paint with green, blue, black, and red
Sharpie(R)markers. The ink was allowed to dry 5 minutes
and the panels were then treated with the solvents or
blends listed above. All the blends contained 37 wt %
NMP-T, 2% surfactant, 1.5% thickener, 0.5% antioxidant
along with cosolvent. The solutions were left on the
panels 1 minute and then rinsed with water. Each
formulation was given a graffiti removal score from 0 to 5
for each paint with 5 indicating complete removal of the
ink. Residual ink could be removed by adding 1-2% of
caustic or bleach to the formulations.
- --------------------------------------------------------------------------------
August 1994
The information in this bulletin is believed to be accurate and current as of
the date of this publication. It is the sole responsibility of the customer to
determine whether the product is appropriate and suitable for customer's
specific use. The applicable Material Safety Data Sheet and Product Storage and
Handling Practices Guide should be reviewed by customer before handling the ARCO
Chemical product. ARCO Chemical disclaims any liability against infringement of
any patent of customer's use of any of ARCO Chemical Company products in
combination with other materials or in any process.
ARCO Chemical
<PAGE>
Information provided as a service by Interchem Environmental, Inc.
Environmental Aspects
NMP / SOYCLEAN & the Environment
--------------------------------
The purpose of this letter is to inform you of the environmental fate of
NMP/SOYCLEAN as determined by numerous environmental and toxicological studies
over the past 40 years. We hope this will help you make an informed decision on
the safe use of NMP/SOYCLEAN in your application.
Because of its exceptional performance, low volatility, and low toxicity,
NMP/SOYCLEAN is the leading substitute for methylene chloride and other
hazardous solvents in paint strippers, graffiti removers, and other products for
consumer and industrial cleanup. EPA lists methylene chloride as a Hazardous Air
Pollutant (HAPs List, 1990 Clean Air Act, Section 112) and considers it a
probable human carcinogen. Methylene chloride is also highly volatile.
In contrast, NMP/SOYCLEAN is neither carcinogenic nor volatile. It can be used
safely and effectively in all its current applications when used with
appropriate personal protective equipment. Results from over 80 environmental
and toxicological studies demonstrate that NMP/SOYCLEAN:
* Biodegrades readily in soil, water, and water treatment facilities.
*Does not volatilize from soil and water, or accumulate in the
environment.
*Has low toxicity for terrestrial and aquatic life.
*Cannot deplete the ozone layer.
*Does not contribute significantly to photochemical smog or VOC
emissions.
*Can be easily recycled.
ARCO Chemical, as member of the NMP Producers Group, has submitted all available
NMP test data and exposure information to EPA who has approved the use of NMP as
an ingredient in agricultural formulations.
Useful environmental information is provided on the back.
<PAGE>
Biodegradation - Extensive testing has shown that NMP/SOYCLEAN biodegrades
readily in soil, water, and wastewater treatment plant environments.
Water - Based on standardized tests, the biochemical oxygen demand after 5 days
(BOD5) was 1,100 mg/l vs a chemical oxygen demand (COD) of 1,600 mg/l. NMP thus
meets OECD guidelines for "readily biodegradable" compounds (BOD5 greater than
60% of COD).
In a static River-die-away test designed to simulate the fate of compounds in
receiving water, 95% of NMP (initial concentration = 100 ppm) was converted to
other products after two weeks and 45$ was converted to CO2 and water, its
ultimate biodegradation products.
In a similar test using a semi-continuous system, 92% of the initial NMP
concentration (200 ppm or less was converted to water and CO2 within 24 hours.
Starting with 1,000 mn/l, unacclimated sludge converted greater than 90% NMP to
CO2 and water after a short adaptation phase (3.5 days).
Soil - NMP is expected to be highly mobile in wet soil based on a calculated
soil coefficient of 9.6 and its high affinity for water. The half-life of NMP in
soils is 4 days in clay, 8.7 days in loam, and 11.5 days in sandy soils.
Water treatment plants - A municipal sewage treatment plant (POTW) has a base
capacity to eliminate spontaneously up to 10 mg/I NMP without adaptation.
Adaptation to higher NMP concentrations (25 mg/l) is very fast (3 days) and NMP
flow can be interrupted for 1 week with no deadaptation.
A plant adapted with 5 mg/l of NMP spontaneously eliminated 40 mg/l and removed
greater than 95% of a 500 mg/l NMP overload in two days. NMP did not accumulate
in the plant over a 10 week period and did not evaporate from the waste water.
These results demonstrate that NMP/SOYCLEAN is non-toxic to aquatic bacteria and
is readily degraded by typical sewage treatment plant organisms.
Aquatic Toxicity - EPA-approved and other standardized tests on fresh water and
estuary fish, algae, aquatic bacteria, and invertebrates all indicate that
NMP/SOYCLEAN is essentially non-toxic to aquatic life.
LC50 values for 5 types of fresh water fish exceeded 500 mg/l for 96 hr.
exposures. LC0 values ranged from 464 mg/l for Golden Orf to 2160 mg/l for
salmon.
EC50 values for Daphnia Magna, Algae, and Bacteria were greater than 1000 mg/l
(24 hrs.), greater than 500 mg/l (72 hrs.), and greater than 9000 mg/l (48 hrs.)
respectively.
Ozone Depletion - NMP/SOYCLEAN does not contain chlorine and, therefore, cannot
contribute to stratospheric ozone depletion.
Smog Formation - Because of its low vapor pressure at ambient temperature, high
affinity for water, and ready biodegradability, NMP/SOYCLEAN is not expected to
contribute significantly to photochemical smog.
VOC Emissions - NMP/SOYCLEAN is a VOC by EPA and California standards (Vapor
Pressure @ 20(degree) C = 0.3 mm Hg) but has a very low evaporation rate (0.03
vs n-butyl acetate = 1) compared to most other solvents. At 25(degree) C NMP
evaporates orders of magnitude slower than methylene chloride (483 times),
acetone (202 times), and toluene (67 times). NMP emissions should be similarly
reduced.
Disposal & Recycling - NMP/SOYCLEAN can be recycled using commercially available
vacuum distillation equipment or by contacting a qualified equipment or by
contacting a qualified recycler. Some municipalities may allow the discharge of
small quantities of NMP/SOYCLEAN to their water treatment plants with proper
remitting. Please check with your local authorities for regulations specific to
your area.
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The information in this newsletter is believed to be accurate as of the date of
publication. It is the sole responsibility of the customer to determine whether
the product is appropriate and suitable for customer's specific use. Interchem
makes no warranties, express or implied, regarding the product or any
information contained herein.
<PAGE>
Information provided as a service by Interchem Environmental, Inc.
Environmental Aspects
NMP/SOYCLEAN, Health & Safety
-----------------------------
The purpose of this letter is to inform you of the health effects of
NMP/SOYCLEAN as determined by numerous toxicological studies over the past 40
years. We hope this will help you make an informed decision on the safe use of
NMP/SOYCLEAN in your application.
Because of its exceptional performance and relatively low toxicity, NMP/SOYCLEAN
is the leading substitute for methylene chloride in paint strippers, graffiti
removers, and other products for consumer and industrial cleanup. NMP/SOYCLEAN
can be used safely and effectively in all its current applications when used
with appropriate personal protective equipment.
In 1990, the Consumer Product Safety Commission (CSPC) asked EPA to propose
additional toxicological testing on NMP because of its growing use as a
substitute for methylene chloride in paint strippers. Results from over 50
toxicological studies already demonstrate that NMP/SOYCLEAN in paint. Results
from over toxicology studies already demonstrate that NMP/SOYCLEAN:
* Has Low order of toxicity.
* Is rapidly excreted following exposure.
* Does not cause mutations in-vitro tests.
* Does not cause cancer in rats by inhalation or mice by injection.
* Does not cause reproductive or developmental effects at doses reached by
occasional or repeated use of NMP/SOYCLEAN-based paint strippers and cleaners.
ARCO Chemical, as a member of the NMP Producers Group, has submitted all
available NMP test data and exposure information to EPA and has been conducting
additional studies to support the extensive health, safety, and environmental
data already available.
Useful health and safety information is provided on the back.
<PAGE>
Oral Toxicity - The oral toxicity of NMP has been studied in various species.
Rats fed up to 3 ml/kg of NMP in a single dose had zero mortality. LD50S ranged
from 3.5 to 7.9 g/kg, depending on the species. EPA considers compounds with
LD50S in the 0.5 g/kg range to be slightly toxic and above 5 g/kg to be
essentially non-toxic.
No significant changes were observed in 90-day feeding studies at doses up to
100 mg/kg/day, well above the industry-recommended occupational exposure limit
of 26 mg/kg/day.
Skin & Eye Hazards - NMP is readily absorbed through the skin and exhibits a
dermal toxicity range similar to oral toxicity. Exposure without protective
gloves can cause reversible dermatitis: Liquid NMP is a moderate to severe eye
irritant but is not expected to cause permanent eye damage. Butyl rubber gloves
offer excellent dermal protection from NMP, and safety goggles provide
sufficient eye protection from splashes at ambient temperature.
Dermal exposure LD50S ranged from 5 to 10 g/kg in rats, 4-8 g/kg in rabbits with
intact skin, and 2-4 g/kg in rabbits with abraded skin. Test animals whose skin
was exposed repeatedly to NMP showed only local irritation at sub-lethal doses.
This shows that NMP is slightly to essentially non-toxic dermally, again by EPA
standards.
Inhalation Hazards - NMP/SOYCLEAN has a low vapor pressure and does not pose an
inhalation hazard unless heated or sprayed. A dusty/mist respirator provides
adequate respiratory (but not dermal) protection for spraying at ambient
temperatures. We recommend you wear a respirator with organic vapor cartridges
if you use NMP/SOYCLEAN above 75 degrees C (167 degrees F) in a poorly
ventilated area.
Acute and repeated overexposure studies in laboratory animals show that NMP is a
respiratory and eye irritant. Short-term (4-8 hours) overexposure (1255 and 342
ppm, resp.) To NMP by aerosol or saturated vapor inhalation caused only slight
eye irritation in rats. NMP has to be heated to 100(degree)C (212(degree)F) in a
moisture free atmosphere to reach a saturated vapor level of 342 ppm.
Long-term (4 weeks, 5 days a week, 6 hours a day) overexposure to NMP by
aerosol-vapor inhalation caused temporary signs of lethargy and irregular
respiration in rats at levels up to and including 125 ppm, the saturated vapor
concentration at 78(degree)C (172(degree) F.) No permanent clinical changes were
observed.
Carcinogenicity and Mutagenicity - NMP did not cause cancer by inhalation in
rats or injection in mice over periods of two years and 17 months, respectively.
NMP was found to be non-mutagenic by a battery of in vitro mutagenicity tests,
including the Ames Salmonella/Microsome assay, the CHO/HGPRT Forward Mutation
assay, and the Rat Primary Hepatocyte Unscheduled DNA Synthesis assay.
Reproductive & Developmental Toxicity - Rat fertility or development was not
affected at doses up to 160 mg/kg/day orally over two generations. Rat
development was not affected by exposure to 237 mg/kg/day dermally throughout
gestation.
Decreased pup survival and growth was observed when rats were exposed to 500
mg/kg/day continuously through gestation and lactation. NMP/SOYCLEAN caused
cleft palates in rats exposed orally to maternally toxic doses (greater than
1,000 mg/g/day) of NMP throughout gestation.
Based on the published rate of NMP transport through human sin (23 mg/cm2/hr)
and the EPA's estimate of manual exposure (420 cm2), a 150-lb person would have
to immerse both hands in 40% NMP for over 5 hours to reach an exposure level
where no adverse effects were observed in rats (160 mg/kg/day). Skin contact
should nonetheless be avoided to prevent irritation and other possible health
effects.
Metabolism - Rats exposed to subtoxic doses (5-50 mg/kg) of NMP dermally,
orally, and intravenously eliminated between 61% (dermal) and (95%) intravenous)
of the dose in the first 24 hours, and retained less than 1% of the dose after 5
days in all cases. The major (greater than 90%) elimination route was via the
urine.
- --------------------------------------------------------------------------------
The information in this newsletter is believed to be accurate as of the date of
publication. It is the sole responsibility of the customer to determine whether
the product is appropriate and suitable for customer's specific use. Interchem
makes no warranties, express or implied, regarding the product or any
information contained herein.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of this 31st day of
September, 1996, by and between DELTA ENVIRONMENTAL, INC., a Delaware
corporation (the "Corporation") and SEAN F. LEE ("Lee").
A. The Corporation wishes to employ Lee as its Chief Executive
Officer.
B. Lee is willing to be employed by the Corporation on the terms
and conditions set forth below.
The Corporation and Lee agree as follows:
1. Employment. The Corporation will employ Lee as its Chief
Executive Officer. Lee will also serve as Chairman of the
Board of Directors of the Corporation, and in such other
capacities as the Corporation shall reasonably deem necessary.
Lee will perform such duties as may be required of him by the
Corporation under and subject to the instruction, direction
and control of the Board of Directors of the Corporation.
2. Devotion to Employment. Lee accepts employment with the
Corporation on the terms and conditions of this Agreement, and
will be a full time employee of the Corporation in his
position as set forth in paragraph 1, provided, however that
nothing herein shall be construed to prevent Lee from making
and supervising personal investments, or from being involved
in the ownership and management of businesses in which he
currently fulfills such roles. During the term of this
Agreement, Lee shall not be actively engaged in any other
business activity which will in any way impair his ability to
properly meet his obligations to the Corporation or represent
any activity competitive with the Corporation or detrimental
to its business. Lee agrees to comply with the reasonable
policies, standards and regulations of the Corporation from
time to time established.
3. Compensation and Benefits. The Corporation agrees to pay Lee
compensation for his services as follows:
3.1 Base Salary and Override. The Corporation will pay
Lee an annual base salary, subject to withholding taxes and other normal payroll
deductions as follows:
(a) Until December 31, 1996, Lee will not be paid a
salary, but the Corporation will pay or reimburse Lee
for expenses under Section 3.3 below;
(b) Beginning January 1, 1996, $100,000 per year until
gross revenues of the Corporation (completed from the
date of this Agreement) exceed $5,000,000;
(c) (i) $150,000 per year; plus
EXHIBIT 14
<PAGE>
(ii) an override equal to nine-tenths of one percent
(0.9%) of gross revenue of the Corporation, payable
quarterly within 30 days after the end of each
quarter.
3.2 Benefits. During the term of this Agreement, Lee shall be
entitled to such medical, dental, disability, life insurance and other benefits
and perquisites, if any, no less favorable than such as are afforded to any
other senior executive of the Corporation, subject to applicable waiting periods
and other conditions. Lee shall be entitled to four weeks of vacation in each
employment year.
3.3 Business Expenses. The Corporation will pay or reimburse
Lee for all transportation, hotel and other expenses reasonably incurred by Lee
on business trips and for all other ordinary and reasonable out-of-pocket
expenses actually incurred by him in the conduct of the business of the
Corporation against itemized vouchers submitted with respect to any such
expenses approved in accordance with customary procedures.
4. Stock Options. In consideration of Lee's employment hereunder,
the Corporation will grant Lee the option to purchase 500,000 shares of the
Corporation's Common Shares at a price of $.3333 per share for a term of five
years. Other specific terms of the option shall be set forth in a separate Stock
Option Agreement, which may be issued under an Incentive Stock Option Plan.
5. Term. The term of this Agreement shall commence October 1,
1996, and shall continue for a term of three (3) years and three (3) months,
ending on December 31, 1999, unless sooner terminated as provided herein. The
term of this Agreement shall automatically extend for successive periods of one
(1) year each, unless the Corporation or Lee gives notice of termination to the
other on or before December 31 of the year two (2) years prior to the end of the
original term, or any extended term, as the case may be. For example, notice of
termination must be given by December 31, 1997 for the term to end on December
31, 1999.
6. Termination.
6.1 Termination Events. This Agreement shall terminate prior
to the end of its term: (a) upon the death of Lee, or (b) if Lee fails, because
of illness or incapacity, to render the services contemplated by this Agreement
for a period of six consecutive months. The Corporation may terminate this
Agreement prior to the end of its term for cause, upon notice to Lee by the
Corporation.
6.2 Continuation of Override. In the event of termination
either prior to or at the end of its term (except only for termination by the
Corporation for cause), and if Lee is then being paid an override under Section
3. 1 (b)(ii) above, for a period of ten (10) years after the termination date,
the Corporation will continue to pay Lee an override equal to one-half of one
percent (0. 5 %) of gross revenues from sales to all accounts existing at the
termination date. Payments shall be made quarterly within 30 days after the end
of each quarter.
- 2 -
<PAGE>
7. Protection of Confidential Information-, Non-Competition.
7.1 Confidential Information. Lee warrants that he is not
subject to any restriction on his executing and performing this Agreement, and
acknowledges that:
(a) As a result of his employment by the Corporation, Lee will
obtain secret and confidential information concerning the business of
the Corporation and its Affiliates, including, without limitation,
financial information, patents and other proprietary rights, trade
secrets and "know-how," customers, and certain business methodologies
("Confidential Information").
(b) The Corporation and its Affiliates will suffer substantial
damage which will be difficult to compute if, during the period of his
employment with the Corporation or thereafter, Lee should divulge
Confidential Information or, thereafter, Lee should enter a business
competitive with those of the Corporation.
(c) The provisions of this Agreement are reasonable and
necessary for the protection of the business of the Corporation and its
Affiliates.
7.2 Maintain Confidentiality. Lee agrees that he will not at
any time, either during the term of this Agreement or thereafter, divulge to any
person or entity any Confidential Information obtained or learned by him as a
result of his employment with the Corporation or any of its Affiliates, except
(a) in the course of performing his duties hereunder, (b) with the Corporation's
express written consent; (e) to the extent that any such information is in the
public domain other than as a result of Lee's breach of any of his obligations
hereunder; or (d) where required to be disclosed by court order subpoena or
other government process. If Lee shall be required to make disclosure pursuant
to the provisions of clause (d) of the preceding sentence, Lee promptly, but in
no event more than 72 hours after learning of such subpoena, court order, or
other government process, shall notify, by personal delivery or by electronic
means, confirmed by mail, the Corporation and, at the Corporation's expense, Lee
shall: (i) take all reasonably necessary steps required by the Corporation to
defend against the enforcement of such subpoena, court order or other government
process, and (ii) permit the Corporation to intervene and participate with
counsel of its choice in any proceeding relating to the enforcement thereof.
7.3 Records. Upon termination of his employment with the
Corporation, Lee will promptly deliver to the Company all original memoranda,
notes, records, reports, manuals, drawings, blueprints, formula and other
documents relating to the business of the Corporation and its Affiliates and all
property associated therewith, which he may then possess or have under his
control; provided, however, that Lee shall be entitled to retain copies of such
documents reasonably necessary to document his financial relationship (both past
and future) with the Corporation.
7.4 Non-Compete. During the term of this Agreement and the
18-month period following the termination of Lee's employment with the
Corporation under the terms of
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<PAGE>
this Agreement, Lee, without the prior written permission of the Corporation,
shall not, anywhere in the United States of America, directly or indirectly, (a)
enter into the employ of or render any services to any person, firm or
corporation engaged in any business which is a 'Competitive Business' (as
defined below); (b) engage in any Competitive Business for his own account; (c)
become associated with or interested in any Competitive Business as an
individual, partner, shareholder, creditor, director, officer, principal, agent,
employee, trustee, consultant, advisor or in any other relationship or capacity;
(d) employ or retain, or have or cause any other person or entity to employ or
retain, any person who was employed or retained by the Corporation in the
six-month period prior to the termination of Lee's employment; or (e) solicit,
interfere with, or endeavor to entice away from the Corporation, for the benefit
of a Competitive Business, any of its customers or other persons with whom the
Corporation has a contractual relationship. However, nothing in this Agreement
shall preclude Lee from investing his personal assets in the securities of any
corporation or other business entity which is engaged in a Competitive Business
if such securities are traded on a national stock exchange or in the over
the-counter market and if such investment does not result in his beneficially
owning, at any time, more than 1 % of the publicly-traded equity securities of
such Competitive Business.
7.5 Injunctive Relief. If Lee breaches, or threatens to
breach, any of the provisions of Sections 8.2, 8.3 or 8.4, the Corporation shall
have the right and remedy to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed by Lee that the services being rendered hereunder to the Corporation are
of a special, unique and extraordinary character and that any such breach or
threatened breach will cause irreparable injury to the Corporation and that
money damages will not provide an adequate remedy in the Corporation.
7.6 Modification of Scope. If any provision of Section 8.2 or
8.4 is held to be unenforceable because of the scope, duration or area of its
applicability, the tribunal making such determination shall have the power to
modify such scope, duration, or area, or all of them, and such provision or
provisions shall then be applicable in such modified form.
8. Definitions. As used in this Agreement:
8.1 "Affiliate" shall mean any entity that, directly or
indirectly, is controlled by, controlling, or under common control with the
Corporation.
8.2 "Competitive Business" shall mean a business which is
directly competitive with any business engaged in by the Corporation.
9. Notices. All notices provided for by this Agreement shall be made in
writing and shall be deemed given when (a) personally delivered to the party
entitled to receive it; (b) transmitted by electronic means; or (c) mailed first
class mail, by certified mail, return receipt requested, addressed to the person
entitled to it at the address set forth below (or at such other address as may
have been designated by written notice). The notice shall be deemed to be
- 4 -
<PAGE>
received on the date of its actual delivery or electronic transmission to the
party entitled thereto, or three days after mailing. If sent to the Corporation,
notices shall be delivered to:
DELTA ENVIRONMENTAL, INC.
c/o Capital West Securities 2525
East Camelback Road, Suite 510
Phoenix, Arizona 85020
Telecopier: (602) 954-7057
with a copy to:
Charles R. Berry
Titus, Brueckner & Berry, P.C.
7373 North Scottsdale Road
Scottsdale Centre, Suite B-252
Scottsdale, Arizona 85253
Telecopier: (602) 483-3215
and, if sent to Lee, notices shall be delivered to:
Sean F. Lee
7113 West Sack Drive
Glendale, Arizona 85308
Marked "Personal and Confidential"
10. Assignment. The rights and benefits of the Corporation under this
Agreement shall be transferable, and all covenants and agreements hereunder
shall inure to the benefit of and be enforceable by, its successors and assigns.
Lee may not assign this Agreement, but it shall inure to the benefit of and be
binding upon his heirs and legal representatives.
11. Arbitration. In the event of any dispute between the parties as to
the interpretation of any of the terms and provisions of this agreement, the
matter shall be submitted to arbitration in the following manner:
Either party shall serve written notice upon the other party
that they desire to submit the dispute to arbitration and within fifteen (15)
days of the date of any such written notice each party shall appoint an
arbitrator within ten (10) days thereafter the two arbitrators so selected shall
appoint a third. In the event either party shall fail to appoint an arbitrator
within such fifteen-day period or if the two arbitrators so appointed shall fail
to select a third within such ten-day period, then a judge of the Superior Court
of Maricopa County or such other court as may have jurisdiction thereover shall
appoint such arbitrator. The three arbitrators shall determine the controversy
in accordance with the Rules of the American Arbitration Association and a
decision of the majority of the arbitrators shall bind and be conclusive upon
the parties.
- 5 -
<PAGE>
The parties shall pay the expense of arbitration in the manner determined by the
arbitrators and judgment upon the award rendered by the arbitrators may, if
permissible, be entered in any court having jurisdiction.
12. Miscellaneous.
12.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Arizona.
12.2 Waiver. No waiver or modification of this Agreement shall
be valid unless in writing and duly executed by the party to be charged
therewith. Waiver by either party hereto of any breach or default by the other
party of any of the terms and provisions of this Agreement shall not operate as
a waiver of any other breach or default, whether similar to or different from
the breach or default waiver.
12.3 Severability. All agreements, provisions,
representations, warranties and covenants contained herein are severable, and in
the event that any one or more of them shall be held to be invalid, illegal or
unenforceable in any respect by any court of competent jurisdiction, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected thereby, and this Agreement shall be
interpreted as if such invalid, illegal or unenforceable agreements, provisions
or covenants were not contained herein.
12.4 Entire Agreemnt. This Agreement, together with the Stock
Option Agreement being executed between the parties, constitutes and embodies
the full and complete understanding and agreement of the parties hereto
provided, and supersedes all prior understandings or agreements, whether oral or
in writing.
The parties have executed this Agreement the day and year first set
forth above. DELTA ENVIRONMENTAL, INC. LEE
By: /s/ George Baird /s/ Sean F. Lee
---------------------------- ----------------------------
SEAN F. LEE
Its: President
---------------------------
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Rotenberg & Company, LLP
- ------------------------
Certified Public Accountants & Consultants
- ------------------------------------------
500 First Federal Plaza * Rochester, N.Y. 14614
- -----------------------------------------------
(716) 546-1158 Fax (716) 546-2943
- -------------- ------------------
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read and agree with the comments in item 3 of Form 10SB of Soy
Environmental Products, Inc. (formerly Denom Acquisition Corp.).
/s/ Rotenberg & Company, LLP
Rochester, New York
May 15, 1997
