10QSB, 1999-12-15

<PAGE>   1
                                   FORM 10-QSB

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

                                   FORM 10-QSB

                         SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended October 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)

<S>                                           <C>
          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)

                            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 (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 [ ]


     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 [ ]


     State number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 32,437,850 shares as of
December 10, 1999.

     Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]

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

<S>                                                                          <C>
Current Assets
      Cash                                                                   $     3,113
      Receivables, net of reserve                                                  7,083
      Prepaid expenses and deposits                                               38,909
                       Total current assets                                       49,105
Other Assets
      Land and improvements                                                      191,132
      Investment in affiliate                                                    528,695
                      Total long-lived assets                                    719,827
                      Total assets                                               768,932

Current Liabilities
      Credit line                                                                 44,635
      Accounts payable                                                           128,420
      Accrued contract salary payable                                            117,915
      Accrued royalties and interest payable                                     100,539
      Loans from shareholder                                                      94,693
      Notes payable                                                              100,633
                       Total current liabilities                                 586,835

Contingent Liabilities                                                                --

Shareholders' Equity (Deficit)
     Preferred shares
     (10 million shares authorized, none issued)                                      --
     Common stock, no par value
     (100 million shares authorized, 30,494,720 issued and outstanding)        6,603,734
     Note receivable from shareholders                                          (355,000)
     Deficit accumulated during developmental stage                           (6,066,637)
            Shareholders' deficit                                                182,097

                       Total liabilities and shareholders' equity            $   768,932

   The accompanying notes are an integral part of these financial statements.

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                       LEADING-EDGE EARTH PRODUCTS, INC.
                        (A Development Stage Enterprise)
Statement of Operations for the Three and Six Months ended October 31, 1999 and
      October 31, 1998, and the period from December 23, 1991 (inception)
                            through October 31, 1999

                                                  Three Months ended             Six Months ended          through
                                               31-Oct-99       31-Oct-98     31-Oct-99     31-Oct-98      31-Oct-99
- ---------------------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>             <C>           <C>            <C>
      License and consulting revenues         $        --    $        --     $       --    $        --    $   497,000
      Interest                                     24,420         15,098         45,464         28,641        196,818
      Other                                            84          5,570            784          5,991         25,974
             TOTAL INCOME                          24,504         20,668         46,248         34,632        719,792
      EXPENSE                                      10,028          3,579         20,126          5,051      1,000,363
      Contract salaries and incentives             23,000         17,890         39,529         32,890      1,580,002
      Travel and entertainment                      2,631         11,917          8,681         18,965        246,469
      Legal and professional                       42,597         50,380         71,743         71,030      1,594,200
      Promotion & corp. development                17,516            525         36,604         30,925        638,540
      Other general & administrative                5,484         10,310         16,234         25,516        518,321
      Manufacturing equipment lease                12,442                        12,442                        12,442
         TOTAL GENERAL & ADMINISTRATIVE           103,670         91,022        185,233        179,326      4,589,974
Interest and other expense
      Interest                                      8,740          7,441         19,113         17,424        294,175
      Adjustment for unpaid revenues from
          affiliate                                15,002         13,045         28,640         24,904        348,916
      Royalties and royalty buyout expense             --             --             --             --        553,000
         TOTAL INTEREST AND OTHER EXPENSE          23,742         20,486         47,753         42,328      1,196,091
             TOTAL EXPENSES                       137,440        115,087        253,112        226,705      6,786,428
                        NET LOSS              $  (112,936)   $   (94,419)   $  (206,864)   $  (192,073)   $(6,066,636)

Loss per common share                         $     (0.00)   $     (0.00)   $     (0.01)   $     (0.01)   $     (0.31)

Weighted average shares outstanding            29,394,454     28,561,989     29,394,454     28,561,989     19,381,669

   The accompanying notes are an integral part of these financial statements.

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                       LEADING-EDGE EARTH PRODUCTS, INC.
                        (A Development Stage Enterprise)
  Statement of Cash Flows for the Three and Six Months ended October 31, 1999
    and October 31, 1998, and the period from December 23, 1991 (inception)
                            through October 31, 1999


                                             Three Months ended         Six Months ended           through
                                            31-Oct-99   31-Oct-98     31-Oct-99   31-Oct-98       31-Oct-99
- ------------------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>          <C>          <C>          <C>
      Net loss                              $(112,936)   $ (94,419)   $(206,864)   $(192,073)   $(6,066,637)

      Noncash compensation expenses
      related to nonqualified stock
      options and stock grants                 11,327       18,989      151,680       49,389      2,957,472
      Depreciation and amortization                                                                  16,185
      Write-off of long-term assets                                                                 170,903
      Accrue royalty obligation                                                                     200,000
      Settlement of lawsuit                                 20,451                    20,451         25,451

      Receivables                                           (2,019)                      610        (24,739)
      Inventory                                             30,724                    30,724        (30,724)
      Prepaid expenses and deposits            (8,812)         782        1,542        4,834        (22,407)
      Accounts payable                            227       63,090      (38,258)      75,647        531,668
      Accrued salary obligations               18,000       15,000        3,000       30,000        457,967
      Accrued interest payable                  1,597      (23,760)      10,060      (14,034)       302,574
     Total adjustments to Operating Loss       22,339      123,257      128,024      197,621      4,584,350
CASH USED IN OPERATING ACTIVITIES             (90,597)      28,838      (78,840)       5,548     (1,482,287)
      Investment in affiliate                 (90,916)     (76,224)    (206,684)     (54,536)      (425,758)
      Equipment purchase, disposals                        (20,285)     (63,556)     (20,285)      (295,640)
      Purchase intangible                                                                           (26,822)
      Payments on notes receivable from
      stockholders                                                                                    6,500
CASH USED IN INVESTING ACTIVITIES             (90,916)     (96,509)    (270,240)     (74,821)      (741,720)
      Increase in line of credit               (2,789)                   (2,181)                     44,635
      Sale of common stock                    186,233       70,000      230,637       70,000        790,637
      Exercise of stock options                75,000                    75,000                     142,537
      Exercise of Class A warrants                                                                    3,300
      Contributed capital                                                                           100,910
      Proceeds from notes payable                                        27,613                     759,263
      Proceeds - loans from shareholders       71,233                   166,233                     862,950
      Payments on notes payable                                                                    (254,379)
      Payments - loans from shareholders     (146,233)                 (146,233)                   (222,733)
CASH FROM FINANCING ACTIVITIES                183,444       70,000      351,069       70,000      2,227,120
      Change in cash                            1,931        2,329        1,989          727          3,113
      Cash at beginning of period               1,182          955        1,124        2,557             --
      Cash at end of period                 $   3,113    $   3,284    $   3,113    $   3,284    $     3,113

   The accompanying notes are an integral part of these financial statements.

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                        LEADING-EDGE EARTH PRODUCTS, INC.
                        (A Development Stage Enterprise)
October 31, 1999

                          NOTES TO FINANCIAL STATEMENTS


ORGANIZATION AND POOLING INTERESTS Leading-Edge Earth Products, Inc. (an Oregon
corporation) believes its products have applications for single-family,
multifamily residential, and low-rise commercial construction. Significant
revenues have not yet been generated from research and development activities or
planned operations. The Company's business activities have been financed
primarily through the issuance of equity securities, outside loans, and loans
from shareholders.

LEEP was incorporated on December 23, 1991. On December 29, 1992, Leading-Edge
Earth Products, Inc., merged with an inactive public company, Crystal Asset
Management, Inc., which was incorporated in Oregon in 1968. This business
combination was accounted for as a pooling of interest. The newly combined
company was named Leading-Edge Earth Products, Inc. The stock began to trade
publicly in March 1993 under the trading symbol "LEEP".

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 Building Technology, Inc.
("Agile") and others in fiscal 1997, the Company 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 owning to the
Company. Consequently the Company adjusted revenues and established a reserve
for totaling $348,916 for amounts due from Agile at October 31, 1999.

INVESTMENT IN AFFILIATE Cash and other resources advanced to LBS are accounted
for at cost and includes accrued interest. The recoverability of this asset
depends on the successful marketing of the Company's products. Because of the
nature of the relationship with LBS, this investment is treated as a Long-Lived
Asset. See discussion under Related Party Transactions below.

PROPERTY AND EQUIPMENT Property and equipment consists of land purchased in
Idaho and costs associated with the development of a new plant.

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. There was no difference between primary and fully diluted earnings
for the period presented.

STOCK-BASED COMPENSATION Options to purchase 775,000 shares of stock were issued
during the quarter ended October 31, 1999 to key individuals providing important
services to LEEP. Options to purchase 2,800,000 shares of stock were issued to
an officer when that officer agreed to personally guarantee significant
long-term debt on behalf of LEEP and to write down short-term liabilities owed
by LEEP in the amount of $564,427. LEEP has not accounted for an expense
relating the options granted

<PAGE>   6

during the quarter.


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 the Company's standards on projects
with which DB Associates is not directly involved as architect.

PURCHASE OPTION From October 1996 until July 31, 1998, L/A Investors financially
supported establishing pilot production operations in Pennsylvania for LEEP's
STRUCTURAL CORE product. On or about July 31, 1998, the Company began
negotiations with L/A Investors, which culminated in a November 30, 1998
agreement whereby the Company obtained the right to buy L/A's operating company,
LEEP Building Systems, Inc. ("LBS"). A Principal of L/A Investors is a minority
shareholder of the Company's common stock. L/A Investors is the sole shareholder
of LBS. The financial records for LBS are reported to the CEO of LEEP. See note
regarding investment in affiliate below. During fiscal 1999 significant cash and
other resources were advanced to LBS. The Company has an option to purchase LBS.
See discussion under Commitments below.

INVESTMENT IN AFFILIATE Since July 31, 1998, the Company advanced significant
cash and assets to LBS. The cash and other resources advanced by the Company
under this arrangement have been accounted for as "Investment in Affiliate". The
investment in LBS continues to increase and the relationship with LBS has
evolved. As a result, the investment is now considered a "long lived" asset.

STOCK OPTIONS During the quarter ended October 31, 1999 non-qualified options to
purchase Rule 144 restricted common stock were issued on the following terms:
2,800,000 options to purchase stock at $0.20 per share for five years; 50,000
options to purchase stock at $0.22 per share for three years; 200,000 options to
purchase stock at $0.16 per share for three years; and 500,000 options to
purchase stock at $0.15 per share for one year. See Stock Based Compensation in
Note 1.

LOANS FROM STOCKHOLDERS On October 31, 1999, the Company owed $94,692, in
unsecured, demand notes payable to stockholders with interest accruing at 8% or
10% per annum. Also, as of October 31, 1999, about $88,482 in accrued interest
was owed to officers and directors of the Company.

LINE OF CREDIT On October 31, 1999 the unused portion of LEEP's $50,000 line of
credit was $5,365. The Company's CEO personally guaranteed this line of credit.

CONTRIBUTED CAPITAL Certain officers of LEEP present and past agreed to write
down $616,854 in Accrued Contract Salary Payable and Loans from Shareholders.
These transactions involved no cash or stock transfers. These reductions in
current liabilities were accounted for by increasing the value of Common Stock
in Shareholders' Equity.


PREFERRED The Articles of Incorporation authorize issuance of up to 100,000,000
shares of common stock and up to 10,000,000 shares of preferred stock. No
preferred shares have been issued. The Board

<PAGE>   7

of Directors has the 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 the Company's common stock outstanding at October
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 unregistered shares issued pursuant to the agreement of merger
dated December 29, 1992 and any shares issued subsequent thereto, are
"restricted securities" under the Securities Act of 1933 and, therefore, are
subject to limitations on transferability.

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


Deferred tax assets primarily consist of net operating loss carry forwards as
the Company has not generated taxable income since inception. There are no
significant deferred tax liabilities. As management of the Company cannot
determine that it is more likely than not that the Company will receive benefit
from these assets, a valuation allowance has been established to reduce the
deferred tax assets to zero at April 30, 1999. 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.

At April 30, 1999, the Company had net operating loss carry-forwards available
to reduce taxable income in future years of approximately $4,513,000, which
begin to expire in 2009.


The Company'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


Management has agreed in principle to acquire LBS, including, among other
things, the pilot production operation in Montgomery, PA and certain other
related assets from L/A Investors the sole shareholder of LBS. The purchase
price is for $250,000 cash, LEEP common shares and preferred shares convertible
into LEEP's common stock. The purchase price will be offset by any amount owed
by LBS to the Company as of July 31, 1998. Additionally, the Management has
agreed to increase the purchase price by $9,500 per month for each month that
the Company does not exercise its option to purchase LBS. On October 31, 1999
the Company had not elected to exercise its option to purchase LBS.

In August, LEEP arranged for a Bradbury Rollforming Machine costing $872,000 to
be manufactured, which is expected to be delivered to LEEP by December 31, 1999.
LEEP has received a lease commitment from Wells Fargo Equipment Finance, Inc.
for a net lease in the amount of $872,000 over 60 months with monthly payments
of $18,271.88 to pay for the machine, said payments to commence after delivery
of the machine. Grant Record and an outside investor have provided a limited

<PAGE>   8

with recourse and the manufacturer has provided a remarketing agreement.

LEEP entered into an agreement with the outside investor providing the guarantee
which requires LEEP to escrow 1,000,000 shares of 144 restricted common stock in
the guarantor's name to be issued to the guarantor in the event of default by
LEEP that results in the guarantor being required to make payments. As a part of
this agreement LEEP was also required to grant the guarantor options to purchase
500,000 shares of 144 restricted common stock at $0.15 per share. The guarantor
has since exercised the option to purchase the 500,000 shares of 144 restricted
common stock.


To date 675,000 shares of Rule 144 restricted common stock has been issued for
services and cash since October 31, 1999, at $0.16 per share.

<PAGE>   9


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

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

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

- -    There are several other companies with substantial capacity to build a
     structural steel skin polyurethane panel which could represent competition
     to LEEP STRUCTURAL CORE construction in certain types of buildings;

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

- -    In recent months LEEP's stock price has shown increasing volatility;

- -    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

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

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 proprietary structural panel and building system was completed, is being
tested (see 8-KSB report filed December 10, 1998), and a patent application
additional to LEEP's earlier claims, was filed with the U.S. Patent and
Trademark Office. Two additional patent applications were filed during the
quarter ended July 31, 1999. One additional U.S. patent was granted during the
quarter. The 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 is planned during 1999, as
well as the addition of personnel to expand the pilot manufacturing facility's
capacity and support the planning and launch 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 has recently learned that LBS will be unable to extend its property
lease in Pennsylvania. LBS is in negotiations with a new landlord but as of this
report final arrangements have

<PAGE>   10

not been made for new space. Equipment valued at $872,000 that will help to
increase production in the LBS Pennsylvania plant to three such buildings a week
has been ordered and is expected to be delivered by the end of the year (see
Note 7 of the Notes to Financial Statements). An additional $257,000 worth of
ancillary production equipment is required to round out the Pennsylvania
production facility expansion and to profitably use the new equipment on order.
LEEP is negotiating to add this equipment via an equipment lease. LEEP continues
to loan operating capital to LBS in anticipation of LEEP exercising its options
to purchase LBS upon completing a long term financing package (see Note 6 of the
Notes to Financial Statements).

LEEP's primary fiscal year 2000 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.

The Company is engaged in discussions with funding sources for up to $23.6
million, to: (1) purchase LBS and for expansion of pilot production operations
in Pennsylvania to produce sufficient LEEP CORE product to construct three
medium size commercial buildings per week, and (2) construct LEEP's first
full-scale, continuous, automated, manufacturing plant with a daily production
capacity of 150,000 sq.ft. of LEEP CORE; and (3) have sufficient working capital
to establish profitable operations.

LEEP has retained the Pinnacle Consulting Group, Snohomish, WA to assist with
completing and implementing the design of the full-scale production 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 full-scale production facility.

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 December 10, 1998.)
Testing to determine the product's capability to withstand wind and floor loads
has been performed informally by LEEP. More advanced tests are currently in
process at the University of Washington to certify all remaining force
resistance characteristics of the LEEP CORE product. Formally certified results
of a six-month long wind-load testing program are expected by December 31, 1999.

LEEP management has been in contact with several developers and agents 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. During the quarter ending July
31, 1999, the Company gained new exposure to desirable domestic building
construction opportunities. The foreign opportunities remain; however, the
Company is now heavily engaged in addressing several high-visibility projects
aimed at exposing the Company's advanced technical and building construction
attributes in the U.S. markets. On December 8, 1999, the Company announced
contracting with Larry R. Cook and Associates, Houston, Texas, to represent LEEP
and set up dealerships for sale of the Company's product in 13 southern states.

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

<PAGE>   11

requirements. Cash needs will increase in January or February by $18,272 per
month when manufacturing equipment on order is delivered to the LBS plant in
Pennsylvania. LEEP is in negotiations to obtain additional equipment for the
Pennsylvania plant that could result in additional lese payments of up to $5,000
per month. LEEP does not expect long term financing or sales sufficient to cover
these costs to be in place prior to commencement of these increased costs. LEEP
will have to fund these expenses in the interim with short- term loans, the sale
of common stock, or by calling on the investor agreement described in Note 6 of
the Notes to Financial statements. 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 estimated $23.6 million to be raised
will allow LEEP to achieve significant levels of production and sales in the
year 2000. The $23.6 million budget is allocated as follows: $2.3 million for
manufacturing buildings, $16.3 million for manufacturing equipment, and $5.0
million for operating capital. The Rollforming Machine, costing $872,000, to be
installed in the LBS Pennsylvania plant, will be financed with a net lease
agreement described in Note 7 of the Notes to Financial Statements.

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 fiscal year ended April 30, 1999,
LEEP received $46,816 from a credit facility, sold stock for $170,000 in cash
and payables, and increased notes payable by $98,020. As of October 31, 1999,
LEEP has used $44,635 of a $50,000 credit facility. Since the end of the last
fiscal year, LEEP has issued stock in exchange for $342,317 of its obligations,
received $186,233 in additional loans from stockholders (present and former
officers of the Company have forgiven the Company $616,854 in accrued contract
salaries payable and loans from shareholders; see Note 2 to the Financial
Statements), and received $75,000 from the exercise of options to buy stock. A
promissory note that came due for $73,020 has been extended to January 1, 2000.

LEEP will need to continue with borrowings and selling stock in order to
continue funding its corporate overhead, until the level of cashflow generated
from operations allows self-sustained operations.

RESULTS OF OPERATIONS: No cash was received as revenue for the quarter ended
October 31, 1999. At the present time LEEP is not booking sales or receiving
license or consulting revenue. Interest due from LBS is being accounted for as a
Long-Lived Asset and LEEP continues to accrue interest earned from Agile to a
reserve account. There were no unusual expenses associated with operations in
the quarter ended October 31, 1999.

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.



LEEP is not engaged in any legal proceedings.


<PAGE>   12

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




No matters have been submitted to a vote of securities holders since the Annual
Meeting held in Seattle on April 30, 1999. Business transacted at that meeting
was summarized in LEEP's 10-KSB report filed on July 26, 1999.


On October 29, 1999 the Company announced the appointment of Kenneth A. Rogstad
as President. Grant Record, founder and CEO, assumed the newly created position
of Vice President of Corporate Development.

On November 13, 1999, the Board of Directors elected Dennis Schrage, President
of Brown MC, Chicago, IL to the Board. Mr. Schrage brings a strong following of
contacts potentially of interest to the Company.


No 8-K reports have been filed during the current fiscal year that began May 1,


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.

Date: December 15, 1999                 By:  Grant C. Record
                                             CEO and Secretary


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