U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT
For the transition period from _____________ to _______________
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Commission File Number 022169
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SOY ENVIRONMENTAL PRODUCTS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 481192445
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9135 Barton Street
Overland Park, Kansas 66214
(Address of principal executive offices)
(913) 5990800
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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The number of shares outstanding of each of the issuer's classes of
common equity was 5,445,200 shares of common stock, par value $.001, as of
December 31, 1997.
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC.
INDEX TO FORM 10-QSB FILING
FOR THE QUARTER ENDED DECEMBER 31, 1997
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TABLE OF CONTENTS PAGE NUMBER
PART I
FINANCIAL INFORMATION
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Item 1. Financial Statement............................................................................. 3
Consolidated Balance Sheet
December 31, 1997 (unaudited) and September 30, 1997.......................... 3
Consolidated Statements of Operations
Three Months Ended December 31, 1997 and 1996 (unaudited)..................... 4
Consolidated Statement of Cash Flows
For the Three Month Period Ended December 31, 1997 and 1996 (unaudited)....... 5
Notes to Consolidated Financial Statements............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................. 12
PART II.
OTHER INFORMATION
Item 2. Changes in Securities........................................................................... 13
Item 3. Defaults in Senior Securities................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders............................................. 13
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
Three Months Ended December 31, 1997 and September 30, 1997
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ASSETS
December 31 September 30
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1997 1997
---- ----
(Unaudited)
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Current Assets:
Cash $ 26,898 $ 185,938
Accounts Receivable 9,927 12,936
Inventory 265,858 141,000
Prepaid Expenses 11,180 93,456
------------ ------------
Total Current Assets 313,863 433,330
Property, plant and equipment, net (Note 1) 16,766 13,183
Investment, at equity (Note 6) 190,000 190,000
Organization costs, net (Note 1) 6,650 7,093
License fees, net (Note 1) 4,750 4,800
------------ ------------
Total Assets $ 532,029 $ 648,406
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable-current portion (Notes 4 and 7) $ 347,278 $ 221,914
Accounts Payable 157,977 140,600
Accrued Expenses 70,645 54,856
------------ ------------
Total Current Liabilities $ 575,900 $ 417,370
------------ ------------
Notes Payable Long Term Portion (Notes 4 and 7) $ 696,271 631,264
Contingencies (Notes 5 and 8) -- --
Stockholders' Equity (Deficit) (Note 9):
Common Stock, $.001 Par Value, 20,000,000 shares
authorized, 5,445,200 shares issued and
outstanding 5,445 5,445
Additional paid-in-capital 384,471 415,085
Accumulated deficit (1,130,058) (820,758)
------------ ------------
Total Stockholders' Equity (Deficit) (740,142) (400,228)
------------ ------------
Total Liabilities and Stockholders' Equity $ 532,029 $ 648,406
============ ============
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
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<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended December 31, 1996 and 1997
(Unaudited)
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Three Months Ended
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December 31
-----------
1997 1996
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Sales $ 12,435 $ 3,133
Cost of Sales 10,631 1,552
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Gross Profit 1,804 1,581
General and Administrative Expenses 220,972 81,719
----------- -----------
Loss from Operations (219,168) (80,138)
Miscellaneous Income 238 245
Interest Expense (90,370) --
=========== ===========
Net Loss $ (309,300) $ (79,893)
=========== ===========
Loss Per Share (Note 1) (0.06) (0.02)
=========== ===========
Weighted Average Shares Outstanding 5,445,200 4,365,988
=========== ===========
Earnings Per Common Share Assuming Dilution (Note 12) $ (0.04) $ (0.02)
=========== ===========
Weighted Average Common Stock Shares
Outstanding, Assuming Dilution (Note 12) 7,022,070 4,365,988
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
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<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Month Period Ended December 31, 1996 and 1997
(Unaudited)
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Three Months Ended
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December 31
-----------
1997 1996
========= =========
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Reconciliation of Net Loss to Net Cash
Provided by Operating Activities:
Net Loss $(309,300) $ (79,893)
--------- ---------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization 443 3,244
Depreciation 641 --
Reverse Acquisition of subsidiary -- (99,360)
Changes in Assets and Liabilities:
Accounts receivable 3,009 (2,040)
Inventory (124,858) --
Prepaid expenses 82,276 --
Deposit 50 --
Accounts payable 17,377 28,353
Accrued expenses 15,789 --
--------- ---------
(5,273) (69,803)
--------- ---------
Net cash used by operating activities (314,573) (149,696)
--------- ---------
Cash flows for investing activities:
Increase in furniture and equipment (4,224) --
--------- ---------
Net cash used by investing activities (4,224) --
Cash flows from financing activities:
Proceeds from issuance of stock (30,614) 175,958
Proceeds from notes payable 190,371 --
--------- ---------
Net cash provided by financing activities 159,757 175,958
--------- ---------
Net increase (decrease) in cash (159,040) 26,262
Cash at the beginning of period 185,938 --
--------- ---------
Cash at end of period $ 26,898 $ 26,262
========= =========
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
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<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.
Reverse Acquisition:
Effective October 21, 1996, the Company purchased all of the
outstanding common stock of Delta Environmental, Inc. The acquisition
was accounted for as a reverse merger using the purchase method of
accounting and the stockholders of Delta Environmental, Inc. received
approximately ninety (90) percent of the outstanding common stock of
Soy Environmental Products, Inc. after the merger. Soy Environmental
Products, Inc. had no activity through the merger date. The activity
for the period ended September 30, 1996 represents the operations of
Delta Environmental, Inc.
Principles of Consolidation:
The consolidated financial statements of the Company include the
accounts of Soy Environmental Products, Inc. and its wholly-owned
subsidiary, Delta Environmental Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
Revenue Recognition:
Revenues are recognized on the accrual basis of accounting with revenue
from product sales recognized at the time of shipment.
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.
Fair Value of Financial Instruments:
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, notes payable and accrued expenses approximate fair
value because of the short maturity of these items. Based on the
borrowing rates currently available to the Company, the carrying
amounts of long-term debt approximate fair value.
Stock-Based Compensation:
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) establishes a fair value
method of accounting for stock-based compensation plans and for
transactions in which an entity acquires goods or services from
non-employees in exchange for equity instruments. The Company adopted
this accounting standard on October 1, 1996. SFAS No. 123 encourages,
but does not require companies to record compensation cost for
stock-based employee compensation. The Company has chosen to continue
to account for stock-based compensation utilizing the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, compensation
cost for stock options is measured as the excess, if any, of the fair
market price of the Company's stock at the date of grant over the
amount an employee must pay to acquire the stock.
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SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents:
For financial accounting purposes, cash and cash equivalents are
considered to be all highly liquid investments purchased with an
initial maturity of three (3) months or less.
Accounts Receivable:
Accounts receivable consist primarily of amounts billed but uncollected
for sales of product.
The Company follows the allowance method of recognizing uncollectible
accounts receivable. The allowance is provided based upon a review of
the individual accounts outstanding, and prior history of uncollectible
accounts receivable. At December 31, 1997, no allowance has been
provided for as management believes the accounts are fully collectible.
Inventory:
At December 31, 1997, inventory quantities and valuation were
determined based upon a physical count of inventory on hand, and
pricing of same. Inventory is stated at the lower of cost, first-in
first-out method, or market. Inventory quantities are reviewed
periodically for obsolescence.
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 three month period ended December 31, 1997 and 1996,
amortization expenses in the amounts of $443 and $3,244 was charged to
operations.
Property, Plant and Equipment:
Property, plant and equipment are recorded at cost. Depreciation is
provided for on the straight -line method over the estimated useful
lives of the assets. Maintenance and repairs are charged to operations
when incurred. Betterments and renewals are capitalized when incurred.
For the three months ended December 31, 1997, depreciation expense was
$464.
The useful lives of property, plant and equipment for purposes of
computing depreciation are:
Furniture and fixtures 5 - 7 years
License Fees:
The license fees consist 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. This license will be
amortized ratably over a twenty-five (25) year period. The Company
evaluates the estimated net realizable value of its license fee at each
balance sheet date and records an impairment of the carrying value
exceeds the expected future net operating cash flows from the related
operation. For the three months ended December 31, 1997, amortization
expense in the amount of $50 was charged to operations.
Income Taxes:
For financial statement and tax reporting purposes, the Company reports
income and expenses based on the accrual method of accounting. For the
three months ended December 31, 1997 and 1996 no provisions were made
for federal and state income taxes due to operating losses incurred in
the respective periods.
At December 31, 1997, the Company has available federal and state net
operating loss carryforwards, which may provide future tax benefits,
expiring as follows:
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<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year of Expiration Federal State
2011 60,229 60,229
2012 1,204,682 1,204,682
The Company has established a valuation allowance equal to the full
amount of the deferred tax assets because, in management's opinion, it
is more likely than not that the Company's deferred tax assets will not
be realized.
Deferred income taxes arise from timing differences resulting from
income and expense items reported for financial and tax purposes in
different periods. Deferred income taxes represent the estimated tax
benefit for timing differences in the utilization of net operating loss
carryforwards and valuation allowances.
Loss Per Common Share:
The computation of loss per common share is based on the weighted
average number of common shares outstanding for the period. Common
share equivalents are not included, as they are antidilutive.
2. Concentrations:
Cash and Cash Equivalents:
The Company maintains cash and cash equivalents with various financial
institutions. Deposits not to exceed $100,000 at each institution are
insured by the Federal Deposit Insurance Corporation. At December 31,
1997, the Company has no uninsured cash and cash equivalents .
Major Supplier:
The Company purchases substantially all of its supply of soybean methyl
esters and other materials from Interwest L.L.C., a related entity. As
of December 31, 1997, the amount included in accounts payable was
approximately $14,465.
3. Inventory:
At December 31, 1997, inventory consists of the following:
Raw materials $ 89,448
Finished goods 176,410
-----------
$ 265,858
===========
4. Notes Payable:
As of December 31, 1997, notes payable are as follows:
Non-interest bearing note payable to an individual,
due on demand; unsecured $ 50,000
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<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-interest bearing Senior Secured Convertible
notes, in the aggregate of $924,000 (less
unamortized discount of $30,451 effective rate
approximately 32%), principal due January 30, 1998
and convertible after November 15, 1997 into
924,000 shares of common stock; secured by stock
and corporate assets 893,549
---------
Non-interest bearing promissory note in the
aggregate amount of $120,000 (less unamortized
discount of $15,000, effective rate approximately
60%, principal due April 30, 1998 and convertible
after April 30, 1998 into 120,000 shares of Common
Stock 100,000
---------
1,043,549
Less: current portion of notes payable (347,278)
---------
$ 696,271
=========
During January, 1998, $720,000 ($696,271, net of unamortized discount
at December 31, 1997) of the aforementioned notes were converted to
720,000 shares of common stock. Therefore, the debt related to same has
been reflected as long-term as of December 31, 1997.
5. Related Party Transactions:
In addition, during the year ended September 30, 1997 , the Company
entered into a debt agreement with an officer for $100,000. The debt
was paid in full as of September 30, 1997 and interest in the amount of
$20,000 has been accrued as of December 31, 1997.
Leasing Arrangements:
The Company leases office space under a month-to-month operating lease
agreement with a related entity. For the three month period ended
December 31, 1997 and 1996, rental expense for the office lease was
$10,694 and $10,694, respectively.
6. Investment:
The investment consists of an approximate 25% ownership interest in
Interwest, L.L.C., an Iowa limited liability company. The investment
will be accounted for under the equity method, however, as of December
31, 1997, no material activity had occurred with respect to the
facility.
Following is a summary of financial position and results of operations
of Interwest, L.C. at December 31, 1997:
Current Assets $ 179,752
Property, plant and equipment 1,076,847
Other assets, net 4,944
-----------
Total Assets $ 1,261,543
===========
Current liabilities $ 214,357
Long-term debt 1,150,000
-----------
$ 1,364,357
-----------
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<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stockholders' equity $ (102,814)
-----------
Total liabilities and stockholders' equity $ 1,261,543
===========
Sales $ 230,536
===========
Net loss $ (96,193)
===========
7. Statement Of Cash Flows:
NonCash Financing Activities:
For the year ended September 30, 1997, the Company recognized financing
activities that affected stockholders' equity, but did not result in
cash receipts.
As of September 30, 1997, these noncash activities consisted of the
following:
The Company completed a debt offering for $924,000, which
included a discount on the debt in the amount of $154,000.
8. Contingencies:
In relation to the Company's debt offering, the Company issued 924,000
warrants exercisable at $1 per share. Upon exercise of these warrants,
the placement agent is to receive five percent (5%) of the proceeds
received by the Company. Should all the warrants be exercised, the
Company will incur $46,200 of additional costs. As of September 30,
1997, no liability has been accrued.
9. Stockholders' Equity:
Common Stock and Stock Split:
On November 8, 1996, the Company's Board of Directors authorized a
1-for-6 reverse split of its common stock.
Private Offerings:
During the year ended September 30, 1997, the Company completed a
private placement of common stock pursuant to Regulation D promulgated
by the Securities and Exchange Commission. The Company issued 1,393,800
shares of common stock pursuant to the offering.
Options and Warrants:
The Company had issued stock options pursuant to an employment
agreement. The options were exercisable at $.33 per share for a period
of five years from grant date. As of September 30, 1997, the options
had been cancelled.
The Company has issued warrants to accredited investors in connection
with a debt offering. In relation to the debt offering, 924,000 Class A
Warrants have been issued at an exercise price of $1.00 per share. The
warrants become exercisable after November 15, 1997, and expire in
three years. As of September 30, 1997, no warrants have been exercised.
In addition, the placement agent on the debt offering received 462,000
Class B Warrants, exercisable at $1.20 per share, expiring in ten (10)
years.
10. Subsequent Events:
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<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In November 1997, the Company initiated a private placement of a series
of preferred stock pursuant to Rule 506 of Regulation D promulgated by
the Securities and Exchange Commission. The offering is for up to 105
units, each unit consisting of 20,000 shares of the series of preferred
stock and 10,000 warrants.
In addition, in December 1998, the Board of Directors authorized a
private placement on a best efforts basis of up to $241,500 principal
amount of convertible notes and 241,500 warrants.
11. Basic Earnings Per Common Share:
Basic earnings per share are based upon the weighted average number of
shares outstanding for each of the respective periods. The following
data reflects the amount used in computing earnings per share for the
quarter ended December 31, 1997, and the effect on income and the
weighted average number of shares of dilutive potential of common
stock.
Three Months Ended
December 31
-----------
1997 1996
---- ----
Net income available to common
stockholders used in basic EPS $ (309,300) $ (79,893)
Basic Earnings (loss) per share
Weighted average common shares
outstanding 5,445,200 4,365,988
--------------------------
Basic earnings (loss) per share $ (0.06) $ (0.02)
==========================
Earnings per Share Assuming Dilution
Common Stock equivalents -- --
Options and warrants granted and
unexercised 1,686,000 --
Assumed buyback of options -- --
--------------------------
1,686,000 --
==========================
Weighted average of common shares
outstanding 5,445,200 4,365,988
--------------------------
Weighted average of common shares
outstanding, assuming dilution 7,022,070 4,365,988
==========================
Earnings per Share Assuming Dilution $ (0.04) $ (0.02)
==========================
12. New Accounting Pronouncements:
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS 128) issued by the Financial Accounting Standards board is
effective for fiscal years and interim periods ending after December
15, 1997. This pronouncement provides a different method of calculating
earnings per share than is currently used in accordance with APB 15,
"Earnings per Share." SFAS 128 provides for the calculation of basic
and diluted earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the earnings of an
entity, similar to fully diluted earnings per share. The Company has
adopted this accounting standard for its earnings per share
computations.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the results of operations and financial
condition should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this Form 10-QSB. Prior to October 21, 1996, the
Company had no operating history. Subsequent to October 21, 1996 all of the
Company's operations are being carried out by its wholly owned subsidiary Delta
Environmental, Inc. ("DEI"). Therefore, all discussions below concerning the
Company prior to the acquisition of DEI relate to and reflect the operations of
DEI only.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1997 Compared to Three Month Ended
December, 1996. For the three month period ended December 31, 1997, the Company
had sales of $12,435 with cost of sales equal to $10,631 resulting in a gross
profit of $1,804. For the same period ending December 31, 1996, the Company had
sales of $3,133 and cost of sales of $1,552 with a gross profit of $1,581. Cost
of sales as a percentage of sales was 85.5% and 49.5% the three month periods
ending December 31, 1997 and 1996, respectively. The wide variance in
percentages is due to the small volume of sales and neither percentage may be
indicative of future costs of sales as a percentage of sales on anticipated
higher revenues. General and administrative expenses were $220,972 for the three
months ended December 31, 1997 which resulted in a loss from operations of
$219,168 for the period or $(.06) per share. For the same period ending December
31, 1997, general and administrative expenses were $81,719 and the loss from
operations was $80,138 or $(.02) per share.
The Company anticipates that its operating expenses will be increasing
so that the Company's future profitability will depend upon significant
increases in revenue from operations. While the Company believes that sales
revenue will increase due to the Company's marketing activities and distribution
agreements recently entered into, there can be no assurance as to the amount of
income which the Company may be able to generate from distributions and sales
operations. Losses have primarily resulted from high start-up and general
administrative costs compared to the Company's initial low sales volume. Given
the Company's financial resources, its anticipated expenses and the highly
competitive environment in which it will operate, there can be no assurance that
the Company will be able to generate sufficient revenue to fund its current or
future operations or that the Company's future operations will be profitable in
the near future or at all.
LIQUIDITY AND CAPITAL RESOURCES
From the date of its formation, January 10, 1996, to the date of the
acquisition of DEI, October 21, 1996, the Company had no revenues or operating
income. For the three month period ended December 31, 1997, the Company had
nominal revenues of $12,435, primarily from sales of samples and trial products.
As of the date of acquisition of DEI, the Company had no tangible assets. On
September 30, 1997, the Company had total assets of $648,406 and total
stockholders' equity (deficit) of $(400,228) compared to $532,029 and
$(740,142), respectively, as of December 31, 1997. As of September 30, 1997, the
Company had current assets of $433,330 in the form of cash, accounts receivable
and current liabilities of $417,370. At December 31, 1997, the Company had
current assets of $313,863 comprised of $26,898 cash, $9,927 accounts receivable
and $265,958 inventory, and current liabilities of $575,900. The Company has
increased its inventory in anticipation of increased sales and expects to
continue to increase inventory as sales activities increase.
Since inception, the Company's working capital needs have been
satisfied by financing activities primarily consisting of the private placement
of common stock and debt.
The Company anticipates meeting its working capital needs during the
current fiscal year primarily with proceeds from the sale of securities and
secondarily with revenues from sales and distribution operations, if any. The
Company believes that it will require substantial additional funds to cover the
costs of manufacturing its products, general and administrative overhead and
meeting its reporting obligations under the Securities Exchange Act. If such
funds are necessary, the Company will seek to borrow such funds and/or raise
such funds through the private or public sale of its common stock or other
securities. No assurances can be given that such financing, if required, will be
available, or that it can be obtained on terms satisfactory to the Company. In
the opinion of management, inflation has not had a material affect on the
operations of the Company.
During January 1998, the Company received its first purchase order from
Payless Cashways of approximately $100,000. The Company's products with respect
to this order were shipped in the first quarter of 1998. The Company anticipates
additional orders for its product will be generated from other home improvement
center retailers. The Company has commenced the establishment of a
manufacturer's representative organization to represent the Company's products
throughout the U.S. that it continues to expand. The organization is responsible
for contacting and developing target markets as determined by the Company's
segments involving large hardware/home center retail chains and the light
industrial and automotive users. Management believes that the proceeds from its
financing activities as currently anticipated will be sufficient to provide for
the Company's planned expansion of its marketing, distribution and sales
activities.
-12-
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On December 22, 1997, the Company filed a definitive Informational
Statement on Form 14C detailing the Company's intent to solicit the written
consent of a majority of its shareholders to amend the Company's Certificate of
Incorporation to authorize the issuance of up to 3,000,000 shares of preferred
stock. The shareholder consent would be effective in January 1998. The
Informational Statement also detailed the Company's intent to establish and
issue a series consisting of up to 2,200,000 shares of preferred stock
designated Series A 12% Cumulative Convertible Preferred Stock (the "Series A
Preferred Stock"). The Series A Preferred Stock will have preference over the
Company's common stock in payment of dividends and in liquidation distributions
of up to $1.00 per share plus accrued but unpaid dividends.
From December 8, 1997 through January 31, 1998, the Company issued a
total of $241,500 of Convertible Subordinate Notes and 241,500 Warrants as units
for total consideration of $200,000. The Convertible Subordinate Notes were
placed through Capital West Investments Holding Company, Inc. for total
commissions of $14,000. The offering was solely to "accredited investors" and
made in reliance on Rule 506 of Regulation D. Each Convertible Subordinate Note
is due four months from issuance and is convertible into shares of the Company's
Common Stock on the basis of $1.00 of principal per share. The Warrants allow
the holder thereof the right to purchase one share of Common Stock per Warrant
at $1.00 for three years from the date of issuance.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
The Company issued $924,000 of its Senior Secured Convertible Notes due
January 31, 1998. Of the $924,000 outstanding, $720,000 of such Senior Secured
Convertible Notes were converted into 720,000 shares of the Company's Common
Stock and the remaining $204,000 principal amount went into default. The Senior
Secured Convertible Notes are secured by a lien on essentially all of the assets
of the Company. No collection activity with respect to such defaulted notes has
been commenced and the Company anticipates that the notes will ultimately be
converted or otherwise satisfied. However, there is no assurance that the
Company will have sufficient funds to satisfy the obligations under such Senior
Secured Convertible Notes. If the Company fails to satisfy its obligations under
such notes, it is possible that the holders thereof would exercise their
remedies and seek to satisfy their obligation through a sale or forfeiture of
the Company's assets. In such event, in all likelihood, the Company could not
continue as a going concern.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
See, Item 2. Changes in Securities above.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed by the undersigned, thereunto duly authorized.
SOY ENVIRONMENTAL PRODUCTS, INC.
(Registrant)
Dated: April 1, 1998 By /s/ Gary L. Haer
------------- ----------------------------------------
Gary L. Haer, Chief Financial Officer
-13-
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