LEADING EDGE EARTH PRODUCTS INC
10QSB, 1999-04-12
CONCRETE PRODUCTS, EXCEPT BLOCK & BRICK
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<PAGE>   1
                                   FORM 10-QSB

                     U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 10-QSB

             (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended January 31, 1999

               ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
                                THE EXCHANGE ACT
           For the transition period from ___________ to ____________
                        Commission file number 93-67656-S

                        LEADING-EDGE EARTH PRODUCTS, INC.
           (Name of small business issuer as specified in its charter)

                  Oregon                                       93-1002429
  ----------------------------------------             ------------------------
  (State of incorporation or organization)             (I.R.S. Employer ID No.)

                    319 Nickerson St. #186, Seattle, WA 98109
               (Address of principal executive offices) (Zip Code)

                                  800-788-3599
                            Issuer's telephone number

         --------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

   Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 9d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. 
Yes [X]   No [ ]

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

   Check whether the registrant filed all documents and reports required to be
filed by Section 12,13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes [ ]    No [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

    State number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 29,784,736 as of January 31, 1999.

    Transitional Small Business Disclosure Format (check one):

Yes [ ]        No [X]



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<PAGE>   2

                        LEADING-EDGE EARTH PRODUCTS, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)


PART I

ITEM 1.        FINANCIAL STATEMENTS

Interim Financial Statements for the period ending January 31, 1999 are attached
hereto.

ITEM 2.        PLAN OF OPERATION

The operations of Leading-Edge Earth Products, Inc. ("LEEP"), from inception
until late 1997 were focused on research and development (R&D), after which the
corporate emphasis became manufacturing, marketing and sales. LEEP conducted R&D
activities, directly, from 1992 to 1996. R&D was done and paid for by an
affiliate, Agile Building Technology, Inc. ("Agile"), from January to October,
1996. In November 1996, management and shareholder-sponsored R&D activities were
undertaken in Pennsylvania, on behalf of LEEP, by LEEP Building Systems, Inc.
("LBS"), assisted by LEEP's CEO, Grant Record. Between November 1996 and early
1998, a viable, patent pending structural panel and building system was
completed, tested and patent claims additional to LEEP's earlier claims, were
filed with the U.S. Patent and Trademark Office. This product is known as "LEEP
STRUCTURAL CORE(TM)" ("LEEP CORE"). The management/investor group that sponsored
LEEP's 1996/1997 R&D also developed a pilot manufacturing facility in
Pennsylvania to produce LEEP CORE. Pilot production began in early 1998.
Significant purchase of equipment and manufacturing facilities by LEEP and its
affiliates and/or subsidiaries is planned during 1999, as well as the addition
of personnel to expand the pilot manufacturing facility's capacity and support
the launching of large-scale manufacturing operations for LEEP CORE. The LBS
plant in Pennsylvania currently has the capacity to produce sufficient panels to
build one commercial building every ten days, in the lower-tier size range of
LEEP's 1,000 to 15,000 sq.ft. target market.

LEEP's primary fiscal year 1999 focus is to finance the manufacturing, marketing
and selling of LEEP CORE. The long-term strategy of LEEP is to form, finance,
control, and manage regional manufacturing plants worldwide. LEEP's business
plan contemplates establishing up to three manufacturing plants within the next
five years.

On November 25, 1998, LEEP entered into a funding agreement with Allegiance
Capital Corporation of Dallas, TX, a major U.S. middle-market investment banking
company. Allegiance has a goal to structure and bring together a total of $18.5
million during 1999 to allow LEEP to: (1) purchase LBS and expand LEEP's pilot
operations in Pennsylvania to produce sufficient LEEP CORE to construct one
medium size commercial building a day, and (2) construct LEEP's first
full-scale, continuous, automated, manufacturing plant with a daily production
capacity of 100,000 sq.ft. of LEEP STRUCTURAL CORE, and have sufficient working
capital to establish profitable operations.

LEEP financed, contracted, closed and received title to a rail-side industrial
park site after it received notice from the Union Pacific Railroad and the Idaho
District Court that the "quiet title" procedure was successfully completed
(please refer to the 8-K report filed by LEEP with the SEC on February 11,
1999). The property includes a spur that connects to the Union Pacific's main
north-south rail line. The price to LEEP was especially attractive as Union
Pacific wishes to develop additional rail customers in the region.

LEEP has retained the Pinnacle Consulting Group, Snohomish, WA to assist with
completing and 



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<PAGE>   3

implementing the design of the Shoshone, ID facility. Pinnacle's work will
result in a set of drawings, specifications, and equipment vendor lists. LEEP
will be able to use Pinnacle's documentation package, permanently, to duplicate
the Shoshone facility anywhere in the world.

In October 1998, LEEP CORE was tested at the Structural Research Laboratory of
the University of Washington's Department of Civil Engineering. The University
report indicates that LEEP's 4" thick by 12' high by 4' wide wall system is five
times stronger than required to support the roof load of typical designs of
American commercial buildings. The tests certify, respectively,
point-load--9,000 lbs.; distributed wall-load--14,000 lbs.; and point-load
internally reinforced--30,000 lbs. (See 8-KSB report filed on December 10,
1998.) Testing to determine the product's capability to withstand wind and floor
loads has been performed by LEEP and will be certified by university tests later
this year.

Item 1 of LEEP's 10-KSB for the period ending April 30, 1998 describes LEEP's
interest in Agile and LEEP's intent to sell its 35% interest in Agile. Item 6 of
LEEP's 10-KSB outlines LEEP's intent to collect on certain obligations owed to
LEEP by Agile. As of this date, no investors have been identified to take Agile
forward. Should an investor not be found LEEP does not expect to recover any
economic benefit from its 35% interest in Agile nor would LEEP collect on any
loans, unpaid fees, accrued interest, or other receivables due LEEP. Because
LEEP has not recognized as assets in its financial statements its interest in
Agile nor the receivable from Agile, should Agile not find a new investor such
will not materially affect LEEP's financial statements.

LEEP management has been in contact with several developers and their
representatives in the Middle East and Southeast Asia. These contacts have
widened the market scope of LEEP to include large volume projects that,
potentially, match LEEP's expected large volume production plans and
corresponding production technology. Planning for these large volume markets
anticipates less order-to-order variation with corresponding savings in sales
fulfillment costs.

LIQUIDITY AND CAPITAL RESOURCES: In recent years LEEP has been almost entirely
dependent on its CEO, Grant Record, arranging credit facilities, making personal
loans, procuring loans from other stockholders, and selling stock to investors
in order to meet the immediate cash needs of LEEP. LEEP has no revenue from
operations and does not have assets that can be liquidated to cover cash
requirements. Management, however, believes that LEEP is in the best position of
its life to raise the required capital to meet its published objectives. This
owes to the fact that LEEP's R&D was completed and LEEP's product moved through
its final developmental phase into production. LEEP's business plan indicates
that the $18.5 million to be raised, as described under the plan of operation
section above, would allow LEEP to achieve high levels of production and sales
in the year 2000. The $18.5 million budget is allocated as follows: $2 million
for manufacturing buildings, $12 million for manufacturing equipment, $3.5
million for operating capital and a $1 million reserve. Lease-based financing 
of buildings and equipment would allow LEEP to proceed with its full-scale 
manufacturing plan by developing as little as $4.5 million of incremental 
debt and/or equity financing.

In the year ending April 30, 1996, LEEP raised $23,541 from the sale of stock,
$202,700 in loans from stockholders, and exchanged $496,011 worth of LEEP
obligations for stock. In the year ended April 30, 1997, LEEP raised $25,000
from the exercise of stock options, borrowed $115,452 with demand notes, and
issued stock in exchange for $514,627 in LEEP obligations. In the fiscal year
ended April 30, 1998, LEEP raised $20,000 from the sale of stock, borrowed
$51,562 from stockholders and $386,500 from a credit facility, and issued stock
for $605,132 worth of LEEP obligations. In the nine months ended January 31,
1999, LEEP financed some of its operations with payables and issued stock for
$247,747 worth of LEEP obligations and cash.



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<PAGE>   4

Since there is no expectation of cash flow from operations in the short term,
LEEP will need to continue with borrowings and selling stock in order to
continue funding its corporate overhead.

RESULTS OF OPERATIONS: No cash was received as revenue for the quarter ended
January 31, 1999. $13,638 of the interest income shown in the Income Statement
is due from an affiliate. This revenue has been allocated to reserve status
because collection is uncertain (please see the paragraph entitled Receivables
in Note 1 to the Financial Statements). At the present time LEEP does not have
any license or consulting revenue agreements. There was a substantial decrease
in professional fees from the previous year's second quarter as a result of LEEP
abandoning certain contracts with consultants.

LEEP has not uncovered any material year 2000 issues that could affect LEEP's
business, results of operations, or financial condition.

For further analysis, see LEEP's Statement of Cash Flows.

PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Earlier reported deficiencies in the legal response to LEEP's law suit against
Mr. Metz were brought current when Mr. Metz completed the first phase of his
deposition on March 27, 1998. A settlement with Tim Metz was reached on December
31, 1998, the terms of which are in an agreement that was attached as Exhibit 99
to LEEP's 10-QSB report filed on January 7, 1999.

ITEM 2.  CHANGES IN SECURITIES

There have been no changes in instruments defining the rights of holders of any
class of securities.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

No matters have been submitted to a vote of securities holders since the Annual
Meeting held in Seattle on January 25, 1998. Business transacted at that meeting
was summarized in LEEP's 10-KSB report filed on November 5, 1998.

ITEM 5.  OTHER INFORMATION

Matters discussed herein, contain forward-looking statements that involve risk
and uncertainties. LEEP's results may differ significantly from results
indicated by forward-looking statements. Factors that might cause some
differences, include, but are not limited to:

- -   Changes in general economic conditions, including but not limited to
    increases in interest rates, and shifts in domestic building construction
    requirements;

- -   Changes in government regulations affecting customers, LEEP, or Agile;



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<PAGE>   5

- -   Risks generally involved in the construction business, including weather,
    fixed price contracts and shortages of materials or price-competitive labor;

- -   Competition;

- -   The ability of LEEP to successfully bring the products from their
    development stage into full and profitable production;

- -   LEEP's ability to raise sufficient debt and/or equity capital to perfect its
    business plans;

- -   The occurrences of incidents which could subject LEEP to liability or fines;

- -   LEEP's ability to obtain the sales orders necessary to support the volume of
    production required to sustain successful operations.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

Unaudited financial reports and notes thereto are attached covering the period
ending January 31, 1999.

An 8-K report was filed on December 10, 1998; an 8-K report was filed on
February 11, 1999; no other 8-K reports have been filed after the 10-K Report
for the year ending April 30, 1998, was filed on November 5, 1998.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Leading-Edge Earth Products, Inc.
(Registrant)


Date: April 9, 1999                     By:    Grant C. Record
                                               CEO and Secretary



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<PAGE>   6

                        LEADING-EDGE EARTH PRODUCTS, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                          INTERIM FINANCIAL STATEMENTS

                                JANUARY 31, 1999

                                   (UNAUDITED)



                                       6
<PAGE>   7

                        LEADING-EDGE EARTH PRODUCTS, INC.
                        (A Development Stage Enterprise)
                                   (Unaudited)
                 Condensed Balance Sheet as of January 31, 1999
================================================================================


<TABLE>
<S>                                                                <C>        
ASSETS
CURRENT ASSETS
      Cash                                                         $       704
      Receivables from affiliate, net of reserve                        13,822
      Inventory                                                             --
      Prepaid expenses and deposits                                     19,949
                                                                   -----------
                   TOTAL CURRENT ASSETS                                 34,475

OTHER ASSETS
      Investment in affiliates                                         274,382
      Property, plant and equipment                                    127,476
                                                                   -----------
                   TOTAL ASSETS                                        436,333
- ------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
      Accounts payable                                                 231,203
      Accrued contract salary payable                                  425,343
      Accrued royalties and interest payable                            81,107
      Notes payable                                                    109,495
      Loans from shareholders                                          313,013
                                                                   -----------
                   TOTAL CURRENT LIABILITIES                         1,160,161

CONTINGENT LIABILITIES                                                      --

SHAREHOLDERS' EQUITY (DEFICIT)
    Preferred shares
    (10 million shares authorized, none issued)
    Common stock, no par value
    (100 million shares authorized, 29,784,736 issued and            5,422,813
    outstanding)
    Note receivable from shareholders                                 (355,000)
    Deficit accumulated during developmental stage                  (5,791,641)
                                                                   -----------
          SHAREHOLDERS' DEFICIT                                       (723,828)

                                                                   -----------
                   TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY      $   436,333
- ------------------------------------------------------------------------------
</TABLE>



                                       7
<PAGE>   8

                        LEADING-EDGE EARTH PRODUCTS, INC.
                        (A Development Stage Enterprise)
                                   (UNAUDITED)

    Statement of Operations for Three and Nine months ended January 31, 1999
           and January 31, 1998 and the period from December 23, 1991
                      (inception) through January 31, 1999

================================================================================

<TABLE>
<CAPTION>
                                                                                                                      Period from
                                                                                                                       23-Dec-91
                                                    Three months ended                 Nine months ended              (inception)
                                              ------------------------------      ------------------------------        through
                                               31-Jan-99          31-Jan-98         31-Jan-99        31-Jan-98         31-Jan-99
- ----------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>               <C>               <C>               <C>               <C>         
INCOME
     License and consulting revenues          $         --      $         --      $         --      $         --      $    497,000
     Interest                                       18,021            14,581            46,662            37,734           132,816
     Other                                              44            37,000             6,035            44,000            25,012
                                              ------------------------------------------------------------------------------------
           TOTAL INCOME                             18,065            51,581            52,697            81,734           654,828
RESEARCH AND DEVELOPMENT EXPENSE                    11,046            31,836            16,097            47,535           978,368
GENERAL & ADMINISTRATIVE EXPENSE
     Contract salaries and incentives               15,000            16,260            47,890           110,239         1,525,473
     Travel and entertainment                        6,998             4,985            25,963            30,976           224,451
     Legal and professional                         40,910           122,417           111,940           334,635         1,507,398
     Promotion & corp. development                  15,450            44,446            46,375            76,846           580,843
     Other general & administrative                 10,216            15,612            35,732            44,005           480,458
                                              ------------------------------------------------------------------------------------
        TOTAL GENERAL & ADMINISTRATIVE              88,574           203,720           267,900           596,701         4,318,623
Interest and other expense
     Interest                                        7,629             8,374            25,053            87,812           259,340
     Adjustment for unpaid revenues
        from affiliate                              13,638            11,859            38,542            33,484           306,637
     Royalties and royalty buyout expense           28,500                --            28,500                --           581,500
                                              ------------------------------------------------------------------------------------
        TOTAL INTEREST AND OTHER EXPENSE            49,767            20,233            92,095           121,296         1,147,477

                                              ------------------------------------------------------------------------------------
           TOTAL EXPENSES                          149,387           255,789           376,092           765,532         6,444,468

                                              ------------------------------------------------------------------------------------
                    NET LOSS                  $   (131,322)     $   (204,208)     $   (323,395)     $   (683,798)     $ (5,789,640)

Loss per common share                         $      (0.00)     $      (0.01)     $      (0.01)     $      (0.02)     $      (0.27)

Weighted average shares outstanding             29,434,747        28,508,820        29,434,747        28,138,420        21,081,934
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>



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<PAGE>   9

                        LEADING-EDGE EARTH PRODUCTS, INC.
                        (A Development Stage Enterprise)
                                   (UNAUDITED)
         Statement of Cash Flows for the Quarter ended January 31, 1999
         and from December 23, 1991 (inception) through January 31, 1999
================================================================================

<TABLE>
<CAPTION>
                                                                                                                Inception
                                                    Quarter ended                  Nine months ended            (23-Dec-91)
                                            ----------------------------      ----------------------------        through
                                             31-Jan-99        31-Jan-98        31-Jan-99        31-Jan-98        31-Jan-99
                                            -------------------------------------------------------------------------------
<S>                                         <C>              <C>              <C>              <C>              <C>         
     Net loss                               $  (131,322)     $  (204,208)     $  (323,395)     $  (683,798)     $(5,791,641)
ADJUSTMENTS TO RECONCILE NET
   LOSS TO CASH USED IN
   OPERATING ACTIVITIES
     Noncash compensation expenses
     related to nonqualified stock
     options and stock grants                    13,500                            62,889          470,929        2,770,714
     Depreciation and amortization                                                                     860           16,185
     Write-off of long-term assets                                38,814                            38,814          170,903
     Accrue royalty obligation                                   (28,897)                          (16,933)         200,000
     Settlement of lawsuit                                                         20,451                            20,451

CHANGES IN OPERATING ITEMS
     Receivables                                 (4,380)                           (3,770)                          (13,822)
     Inventory                                                                     30,724          (30,724)                
     Prepaid expenses and deposits                                95,394            4,834          (95,213)         (19,949)
     Accounts payable                            91,048          (16,766)         166,695          (50,813)         630,229
     Accrued salary obligations                  15,000           15,000           45,000           31,615          439,967
     Accrued interest payable                     7,269                            (6,765)                          283,142
                                            -------------------------------------------------------------------------------
     Total adjustments to Net Loss              122,437          103,545          320,058          348,535        4,497,820
                                            -------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES                (8,885)        (100,663)          (3,337)        (335,263)      (1,293,821)
                                            -------------------------------------------------------------------------------

     Investment in affiliate                    (55,999)                         (110,535)         (87,612)        (199,323)
     Equipment purchase,disposals              (107,191)                         (127,476)                                 

     Purchase intangible                                                                           (15,000)         (26,822)
     Payments on notes
     receivable from stockholders                                (23,701)                          (23,701)           6,500
                                            -------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES              (163,190)         (23,701)        (238,011)        (126,313)        (506,185)
                                            -------------------------------------------------------------------------------

     Sale of common stock                        50,000           40,000          120,000          152,687          510,000
     Exercise of stock options                                                                                       67,537
     Exercise of Class A warrants                                                                                     3,300
     Contributed capital                                                                                            100,910
     Proceeds from notes payable                109,495           66,000          109,495           66,000          768,125
     Proceeds - loans from shareholders          10,000           26,563           10,000           36,563          681,717
     Payments on notes payable                                                                     (74,630)         (76,500)
     Payments - loans from shareholders                                                            (15,000)        (254,379)
     Shares issued for accounts payable                                                            302,415                 
                                            -------------------------------------------------------------------------------
CASH FROM FINANCING ACTIVITIES                  169,495          132,563          239,495          468,036        1,800,710
                                            -------------------------------------------------------------------------------
     Change in cash                              (2,580)           8,199           (1,853)           6,460              704
     Cash at beginning of period                  3,284            4,158            2,557            5,897               --
                                            -------------------------------------------------------------------------------
     Cash at end of period                  $       704      $    12,357      $       704      $    12,357      $       704
                                            -------------------------------------------------------------------------------
</TABLE>



                                       9
<PAGE>   10

                        LEADING-EDGE EARTH PRODUCTS, INC.

                                JANUARY 31, 1999
                          NOTES TO FINANCIAL STATEMENTS


NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND POOLING OF INTERESTS. Leading-Edge Earth Products, Inc.
("LEEP"), believes its products have applications for single-family, multifamily
residential and low-rise commercial construction. LEEP is considered to be in
the development stage. Significant revenues have not yet been generated from
research and development activities or planned operations. LEEP's business
activities have been financed primarily through the issuance of equity
securities, and borrowings from shareholders and others.

On December 29, 1992 LEEP entered into a business combination that was accounted
for as a pooling of interest wherein Leading-Edge Earth Products, Inc., merged
with an inactive public company, Crystal Asset Management, which had been
incorporated in Oregon in 1968. In March of 1993, LEEP began again to trade its
stock publicly as Leading-Edge Earth Products, Inc.

USE 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.

RECEIVABLES. As a result of an agreement with Agile and WLP in fiscal 1997, LEEP
does not expect to collect license and consulting revenues and interest due from
Agile until after Agile is in production and is in a position to make payments
on amounts owing to LEEP. Agile's ability to begin production and finance sales
is dependent on locating investors and, as of this filing date, no investors
have been identified. Consequently LEEP increased operating losses and
established a reserve totaling $306,637 for amounts due from Agile on January
31, 1999.

INVENTORY. Inventory consisting of steel for fabrication purchased for $30,724
during fiscal 1998 and has been transferred to an affiliate with a corresponding
increase in "Receivables from affiliates" in the quarter ended October 31, 1998.
No revenue was recognized on this transaction.

INVESTMENT IN AFFILIATE. LEEP has agreed to enter into a joint venture agreement
with L/A Investors involving certain production facilities. Cash has been
advanced by LEEP for investment in LEEP Building Systems, Inc. ("LBS") and L/A
Investors has made contributions toward LBS. To the extent cash was advanced by
LEEP this arrangement has been accounted for as "investment in affiliate". L/A
Investors has recognized part of the investment by LEEP by issuing notes payable
to LEEP and the balance is carried as a receivable from the affiliate (LBS).

INCOME TAXES. Deferred Income tax assets and liabilities are computed for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances have
been established to reduce tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the period 



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<PAGE>   11

plus or minus the change during the period in net deferred tax assets and
liabilities.

NET LOSS PER COMMON SHARE. Net Loss per common share is computed based on the
weighted-average number of common shares and common share equivalents
outstanding. When dilutive, stock options are included as common share
equivalents using the treasury stock method.

There was no difference between basic and fully diluted earnings per share for
all periods presented.

INVESTMENTS IN SUBSIDIARIES. LEEP has a 35% interest in Agile. This investment
is accounted for using the equity method. Agile is a development stage
enterprise established in December 1995 to manufacture building panels using
technology developed jointly with LEEP and/or independently. Agile has incurred
operating losses since its inception in 1995 through the period ended April 30,
1998.

LEEP has recorded no value related to this investment due to the indeterminable
values related to LEEP's common stock and technology given or the common stock
of Agile received in the investment transaction. LEEP has not recognized its
proportionate share of Agile's net losses as LEEP has no obligation to fund any
such losses.

NOTE 2: RELATED PARTY TRANSACTIONS

ARCHITECTURAL SERVICES AGREEMENT. LEEP has entered into an agreement with the
owner of DB Associates, a stockholder and member of the Board of Directors, to
provide architectural and sales services. In addition to normal hourly rates for
architectural services, DB Associates will be paid for sales and marketing
efforts at the rate of $1.00 per panel for each panel sold to persons or
companies for which DB Associates performs architectural work.

DB Associates will alternatively receive $0.25 per panel for providing
architectural review for compliance with LEEP's standards on projects with which
DB Associates is not directly involved as architect.

JOINT VENTURE. At July 31, 1998, LEEP and L/A Investors were in the process of
finalizing a joint venture agreement. During the initial stages of this joint
venture, LEEP contributed cash and technology and L/A Investors contributed cash
and manufacturing equipment. Principals of L/A Investors are significant
shareholders of LEEP's common stock.

STOCK OPTIONS. Information on options outstanding is contained in the April 30,
1998 10-KSB. Since then LEEP has issued options to purchase 100,000 shares of
LEEP restricted stock at $0.25 per share and options to purchase 100,000 shares
of LEEP restricted stock at $0.20 per share.

NOTES RECEIVABLE FROM STOCKHOLDERS. LEEP has from time to time issued common
shares in return for notes receivable from stockholders. In many instances these
stockholders were also officers and directors. These notes receivable have been
accounted for as reductions of stockholders' equity.

LOANS FROM STOCKHOLDERS. At January 31, 1999, LEEP owed $313,013, in unsecured,
demand notes payable to stockholders plus interest which is accruing at 8% or
10% per annum.

NOTE 3: PREFERRED AND COMMON STOCK

PREFERRED. The Articles of Incorporation authorize issuance of up to 10,000,000
shares of preferred stock. As of January 31, 1999, no preferred shares have been
issued. The Board of Directors has the 



                                       11
<PAGE>   12

authority, without further stockholder action, to determine the preferences,
limitations, and relative rights of the preferred stock, subject to the
requirements on the Oregon Business Corporation Act.

COMMON STOCK. Only a portion of LEEP's common stock outstanding on January 31,
1999 is freely tradable. The freely tradable shares include the 1,193,683 shares
originally held by certain founding stockholders, 995,000 shares registered on
March 4, 1994 and subsequently sold, and those shares issued after December 29,
1992 where the holding period and trading volume restrictions are satisfied. The
shares issued pursuant to the agreement of merger dated December 29, 1992 and
many shares issued subsequent thereto, are "restricted securities" under the
Securities Act of 1933 and, therefore, are subject to limitations on
transferability. 727,333 shares of restricted rule 144 stock was issued during
the quarter ended January 31, 1999 in exchange for services rendered to LEEP and
notes payable.

All warrants to purchase shares of common stock have been called or have
expired.

NOTE 4: INCOME TAXES

Deferred tax assets primarily consist of net operating loss carry forwards.
There are no significant deferred tax liabilities. A valuation allowance has
been established to reduce the deferred tax assets to zero as a result of LEEP's
recurring losses. Differences between the cumulative net loss for financial
reporting purposes and that available for income tax purposes arise primarily as
a result of nondeductible expenditures paid by the issuance of securities and
capitalized start up costs.

Net operating loss carry forwards for federal income tax purposes which are
available to offset future taxable income, if any, expire as follows:

<TABLE>
<S>                                                 <C>       
                      2009                          $    7,000
                      2010                              31,000
                      2011                           1,091,000
                      2012                           1,627,000
                      2013                           1,399,000
</TABLE>

NOTE 5: FAIR VALUE OF FINANCIAL INSTRUMENTS

LEEP's financial instruments include cash, receivables, accounts payable, notes
payable and loans from stockholders. Except for notes receivable from
stockholders and loans from stockholders, LEEP believes that the fair value of
these financial instruments approximates their carrying amounts based on current
market indicators, such as prevailing market rates. It is not practicable to
estimate the fair value of notes receivable from stockholders and loans from
stockholders, due primarily to the uncertainty surrounding the timing of cash
flows.

NOTE 6: INVESTMENT SERVICES AGREEMENT

On June 13, 1994, LEEP entered into a consulting agreement with an investment
company. LEEP agreed to pay the investment company a consulting fee of 5% of all
moneys raised on LEEP's behalf. As part of the agreement, LEEP also issued
500,000 of restricted common shares to the owners of the investment company upon
signing of the agreement. Pursuant to the agreement, an additional 500,000
restricted common shares were to be issued after the sale of 800,000 shares of
LEEP stock. The sale of shares contemplated did not occur. This agreement
expired in December 1994 and LEEP has requested return of the 500,000 shares due
to nonperformance by the investment company. Settlement was reached subsequent
to April 30, 1997 whereby 400,000 shares remained outstanding, but highly
restricted, and 



                                       12
<PAGE>   13

100,000 shares were released for sale.

NOTE 7: COMMITMENTS AND CONTINGENCIES

On July 27, 1995, LEEP filed a complaint for Declaratory Judgment and Injunction
with the Superior Court of Washington in Seattle, Washington, enjoining a former
officer of LEEP, and shareholder, not to use any patented or trade secret
information covered by his employment agreement. At the same time, suit was
brought against the shareholder in conjunction with severance details as it
relates to his employment contract and method of compensation. The shareholder
filed suit in the same time frame claiming certain rights to technology and
damages in excess of $395,000. A settlement was reached on December 31, 1998,
which is exhibit 99 with the 10QSB filed on January 7, 1999. As a result of this
agreement the Note receivable from shareholders was reduced by $128,784, Loans
from shareholder was reduced by $103,333, Accrued interest payable was reduced
by $30,949, and Other income of $5,498 was recognized in the financial
statements for the quarter ended October 31, 1998.

NOTE 8: CONTINGENT LIABILITY

In July 1998, LEEP Building Systems, (LBS), took possession of an Interfacing
Foam Generation System and in October 1998, LBS took possession of an air
chiller that had been manufactured to LEEP's specification for its proposed
manufacturing process. Financing the equipment was arranged that requires
monthly payments of approximately $2,353. The payment responsibility has been
assigned to LBS pending LEEP's acquisition of LBS but LEEP continues to
guarantee the payments to the financing company. As of January 5, 1999, the
balance due on these contracts was $121,171.

Subsequent to April 30, 1998, finished goods inventory were shipped from the LBS
manufacturing facility in Williamsport PA to Twin Falls, ID, where it is being
used in construction of buildings to demonstrate the uses, features and benefits
of LEEP's product.

NOTE 9: OPTION TO PURCHASE AFFILIATE

LEEP has acquired an exclusive right to purchase LEEP Building Systems including
its manufacturing facility in Montgomery, PA. In this agreement LEEP agrees to
pay $9,500 per month starting November 1, 1998 on an accrual basis to be paid at
the time the option to purchase is exercised. This expense is reflected in the
Statement of Operations as "Royalties, royalty buyout and option expense".

NOTE 10: SUBSEQUENT EVENTS

Subsequent to January 31, 1999 LEEP issued 25,000 shares of restricted rule 144
stock as interest for a stockholder loan in the amount of $50,000.



                                       13

<TABLE> <S> <C>

<ARTICLE> 5
       
<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          APR-30-1999
<PERIOD-START>                             NOV-01-1998
<PERIOD-END>                               JAN-31-1999
<CASH>                                             704
<SECURITIES>                                         0
<RECEIVABLES>                                  320,454
<ALLOWANCES>                                   306,637
<INVENTORY>                                          0
<CURRENT-ASSETS>                                34,476
<PP&E>                                         127,476
<DEPRECIATION>                                       0
<TOTAL-ASSETS>                                 436,333
<CURRENT-LIABILITIES>                        1,160,161
<BONDS>                                              0
                                0
                                          0
<COMMON>                                     5,422,813
<OTHER-SE>                                 (6,146,641)
<TOTAL-LIABILITY-AND-EQUITY>                   436,333
<SALES>                                              0
<TOTAL-REVENUES>                                18,065
<CGS>                                                0
<TOTAL-COSTS>                                   99,620
<OTHER-EXPENSES>                                28,500
<LOSS-PROVISION>                                13,638
<INTEREST-EXPENSE>                               7,629
<INCOME-PRETAX>                              (131,322)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                                  0
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                 (131,322)
<EPS-PRIMARY>                                     0.00
<EPS-DILUTED>                                     0.00
        

</TABLE>
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