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 _______________

                             ----------------------

                          Commission File Number 022169

                             ----------------------

                        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
   -------------             -------------

         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
   -------------             -------------

================================================================================
<PAGE>
                        SOY ENVIRONMENTAL PRODUCTS, INC.
                           INDEX TO FORM 10-QSB FILING
                     FOR THE QUARTER ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                              TABLE OF CONTENTS                                   PAGE NUMBER

                                                    PART I
                                            FINANCIAL INFORMATION

<S>      <C>                                                                                               <C>
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>
                                       -2-
<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

<TABLE>
<CAPTION>
                                                ASSETS
                                                                         December 31     September 30
                                                                         ------------    ------------
                                                                             1997            1997
                                                                             ----            ----
                                                                          (Unaudited)
<S>                                                                      <C>             <C>         
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
                                       -3-
<PAGE>
                 SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  Three Months Ended December 31, 1996 and 1997
                                   (Unaudited)



<TABLE>
<CAPTION>
                                                                            Three Months Ended
                                                                            ------------------
                                                                                December 31
                                                                                -----------

                                                                           1997               1996
                                                                       ===========        ===========

<S>                                                                    <C>                <C>  
Sales                                                                  $    12,435        $     3,133

Cost of Sales                                                               10,631              1,552
                                                                       -----------        -----------
         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
                                       -4-
<PAGE>
                 SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS
           For the Three Month Period Ended December 31, 1996 and 1997
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                              Three Months Ended
                                                                              ------------------
                                                                                  December 31
                                                                                  -----------

                                                                             1997              1996
                                                                          =========         =========

<S>                                                                       <C>               <C>       
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
                                       -5-
<PAGE>
                 SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       Summary Of Significant Accounting Principles And Nature Of Operations:

         Nature of Corporation:

         Soy  Environmental   Products,  Inc.  and  Subsidiary  (formerly  Denom
         Acquisition Corp.) is a Corporation which was duly formed and organized
         under  the laws of the State of  Delaware  on  January  10,  1996.  The
         Company  was in the  development  stage  and had no  activity  from its
         inception  through October 21, 1996. The principal  business purpose of
         the  Corporation  is to  engage in the  development  of,  ownership  of
         interests in, and operation of biodegradable  chemical facilities,  and
         to  establish  national  sales  and  distribution  networks  for  these
         products.

         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.
                                       -6-
<PAGE>
                 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:
                                       -7-
<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
                                       -8-

<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
                                                                   -----------
                                       -9-
<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:
                                      -10-
<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.
                                      -11-
<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-