| | | | | | | | | |
Deltron, Inc. and Subsidiary |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | For the three Months ended |
| | | | | | | March 31, |
| | | | | | | 2011 | | 2010 |
| | | | | | | unaudited | | unaudited |
| | | | | | | | | |
Cash Flows from Operating Activities: | | | | | |
| Net loss | | | | | $ (71,431) | | $ (159,644) |
| | | | | | | | | |
Adjustments to reconcile net loss to net cash used | | | | |
| in operating activities: | | | | | | |
| Depreciation | | | | | 2,850 | | 2,500 |
| Beneficial conversion feature | | | - | | 39,500 |
| Amortization of intangible assets | | | 26,250 | | - |
| Amortization of discount on notes payable | | 20,304 | | - |
| (Increase) Decrease in accounts recievable | | (35,194) | | (78,251) |
| (Increase) Decrease in inventory | | | (45,352) | | 29,073 |
| (Increase) Decrease in prepiad expenses | | 17,369 | | (4,494) |
| Increase (decrease) in accounts payable | | 4,481 | | 85,605 |
| Increase (decrease) in accrued expenses | | (21,039) | | 35,219 |
| Increase (decrease) in accrued expenses - related parties | 50,000 | | - |
| Increase (decrease) in accrued interest - other | | 24,754 | | - |
| Increase (decrease) in accrued interest - related parties | 12,706 | | 36,344 |
| | | | | | | | | |
Net Cash Used by Operating Activities | | | (14,302) | | (14,148) |
| | | | | | | | | |
Cash Flows from Financing Activities | | | | | |
| Borrowing of convertible debt | | | 50,000 | | - |
| Borrowing on related party notes | | | - | | 39,500 |
| | | | | | | | | |
Net Cash Provided by Financing Activities | | | 50,000 | | 39,500 |
| | | | | | | | | |
Net Increase in Cash | | | | 35,698 | | 25,352 |
| | | | | | | | | |
Cash - Beginning of Period | | | | 35,861 | | 29,986 |
| | | | | | | | | |
Cash - End of Period | | | | $ 71,559 | | $ 55,338 |
| | | | | | | | | |
| | | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | |
| Cash paid for interest expense | | | $ 1,629 | | $ 2,032 |
| Cash paid for income taxes | | | $ - | | $ - |
| | | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |
| | | | | | | | | |
Issuance of convertible note payable of $3,150,000 for unpatented |
rebreather system technology. |
| | | | | | | | | |
| | | | | | | | | |
The accompanying notes are an integral part of these financial statements. |
| | | | | | | | | |
Deltron, Inc. and Subsidiary |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | For the six Months ended |
| | | | | | | March 31, |
| | | | | | | 2011 | | 2010 |
| | | | | | | unaudited | | unaudited |
| | | | | | | | | |
Cash Flows from Operating Activities: | | | | | |
| Net loss | | | | | $ (254,590) | | $ (258,943) |
| | | | | | | | | |
Adjustments to reconcile net loss to net cash used | | | | |
| in operating activities: | | | | | | |
| Depreciation | | | | | 5,700 | | 5,000 |
| Beneficial conversion feature | | | | - | | 39,500 |
| Amortization of intangible assets | | | 26,250 | | - |
| Amortization of discount on notes payable | | 79,333 | | - |
| (Increase) Decrease in accounts recievable | | 206,881 | | 24,528 |
| (Increase) Decrease in inventory | | | (88,576) | | 15,074 |
| (Increase) Decrease in prepiad expenses | | 48,881 | | 22,986 |
| Increase (decrease) in accounts payable | | (158,129) | | 33,617 |
| Increase (decrease) in accrued expenses | | (21,785) | | (12,516) |
| Increase (decrease) in accrued expenses - related parties | 80,000 | | 30,000 |
| Increase (decrease) in accrued interest - others | | 28,332 | | - |
| Increase (decrease) in accrued interest - related parties | 25,416 | | 25,424 |
| | | | | | | | | |
Net Cash Used by Operating Activities | | | (22,287) | | (75,330) |
| | | | | | | | | |
Cash Flows from Financing Activities | | | | | |
| Proceeds from sale of common stock | | | - | | 65,000 |
| Decrease in bank overdraft | | | | (10,506) | | - |
| Borrowing on related party notes | | | - | | 39,500 |
| Borrowing of convertible debt | | | | 127,500 | | - |
| Payments on line of credit | | | | (25,000) | | - |
| | | | | | | | | |
Net Cash Provided by Financing Activities | | | 91,994 | | 104,500 |
| | | | | | | | | |
Net Increase in Cash | | | | | 69,707 | | 29,170 |
| | | | | | | | | |
Cash - Beginning of Period | | | | 1,852 | | 26,168 |
| | | | | | | | | |
Cash - End of Period | | | | | $ 71,559 | | $ 55,338 |
| | | | | | | | | |
| | | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | |
| Cash paid for interest expense | | | $ 3,683 | | $ 4,096 |
| Cash paid for income taxes | | | | $ 800 | | $ - |
| | | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: | | |
| | | | | | | | | |
In November the Company issued 80,000,000 shares of its common stock valued at $60,000 |
to Elasco's president, $10,000 was recorded as a bonus and $50,000 is prepaid salary to be |
expensed over six months beginning mid November 2010. | | | | |
| | | | | | | | | |
The accompanying notes are an integral part of these financial statements. |
Deltron, Inc. & Subsidiary.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2011
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
Business Description
Deltron, Inc. (the “Company”) is a Nevada Corporation incorporated on September 14, 2005. It is based in Garden Grove, California. Through May 26, 2010 the Company was in the development stage. On May 26, 2010 the Company acquired all of the assets and liabilities of Blu Vu Deep Oil & Gas Exploration, Inc. including its ownership of 100% of the outstanding stock of Elasco, Inc. by issuance of 123,978,980 restricted common shares of its stock.
Elasco was incorporated on October 25, 1979 in the state of California. Its principal business is manufacturing and selling of open cast molded polyurethane elastomer products such as skateboard, roller skate, and industrial wheels.
After the acquisition of BluVu’s assets, the Company is engaged in potential manufacture and mass-market of proprietary breathing equipment developed specifically for the oil and gas, mining and safety industries, and military and recreational divers. The technology is still under development. Production and manufacture of the equipment (primarily Closed-Circuit Rebreathers “CCRs” and components used for all types of rebreathers) will be produced by the wholly-owned subsidiary, Elasco, while the Company provides financial, operational and technical expertise.
On August 4, 2010, Deltron entered into an agreement with Radikal, AS (“Radikal”), the owner of intellectual property involving rebreather technology, to purchase its intellectual property involving said technology (the “Radikal Agreement”). The Radikal Agreement requires the Company to pay a per unit fee of $35 for at least 500 units per year for 2 years, after which the obligation to Radikal will be fulfilled. The Company is required to begin making payments in January 2012.
Pursuant to the terms of the Radikal Agreement, Radikalhas transferred all U.S. and international patent rights to the Company. However, if the per unit fee payments are not made when due, Radikal has the right to the return of the intellectual property transferred.
The acquisition of BluVu’s assets and Elasco, Inc. by the Company has been accounted for as a reverse capitalization. The reverse recapitalization was the acquisition of a private operating company into a non-operating shell corporation with nominal net assets and is treated as a capital transaction, rather than a business combination. As a result no goodwill is recorded. In this situation Deltron is the legal acquirer because it acquired all of the assets and liabilities of Blu Vu and 100% of the stock of Elasco and Elasco is the legal acquiree because its equity interests were acquired. However, Elasco is the acquirer and Deltron is the acquiree for accounting purposes. The pre-acquisition financial statements of Elasco are treated as the historical
financial statements of the consolidated companies except that the equity section and earnings per share have been retroactively restated to reflect the reverse recapitalization.
Principles of consolidations
The accompanying unaudited condensed consolidated financial statements are presented in accordance with accounting principlesgenerally accepted in the United States of America (“GAAP”). The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Elasco. All significant intercompany transactions have been eliminated in consolidation.
Unaudited Interim Financial Data
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information required by GAAP for annual financial statements. In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended March 31, 2011 are not necessarily indicative of results for any future period. These statements should be read in conjunction with the consolidated financial statements and notes for the year ended September 30, 2010 thereto included in the Company’s Form 10-K filed on January 13, 2011.
Use of Estimates
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of the Company’s consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ from these estimates under different assumptions or conditions.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
The Company deposits its cash with major financial institutions and may at times exceed the federally insured limit. At March 31, 2011 cash did not exceed the federally insured limit. The Company believes that the risk of loss is minimal. To date, the Company has not experienced any losses related to cash deposits with financial institutions.
Accounts Receivable
The Company estimates the collectability of customer receivables on an ongoing basis by reviewing past-due invoices and assessing the current creditworthiness of each customer. Allowances are provided for specific receivables deemed to be at risk for collection. As of March 31, 2011, allowance of doubtful accounts was $2,630.
Inventory
Inventory consists of raw material, work in progress, and finished goods. It is stated at the lower of cost or market on a first in, first out (FIFO) basis.The Company also evaluates and reserves allowance of obsolescence of its inventories. As of March 31, 2011, the allowance for obsolescence was $9,795.
Property and Equipment and Depreciation Policy
Property and equipment are recorded at cost, less accumulated depreciation. Cost of repairs and maintenance are expensed as they are incurred. Major repairs that extend the useful life of equipment are capitalized and depreciated over the remaining estimated useful life. When property and equipment are sold or otherwise disposed, the related cost and accumulated depreciation are removed from the respective accounts and the gains or losses realized on the disposition are reflected in operations. The Company uses the straight - line method in computing depreciation for financial reporting purposes.
Intangible assets
Costs paid by the Company related to the establishment, transfer and purchase of patented and unpatented technology and other intangibles are capitalized and amortized, depending on the estimated useful life of the technology. Useful lives range from three to ten years. Amortization is on the straight-line method.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets with finite lives. The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss is recognized when the carrying amount of the long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is deemed not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results. Based upon the most recent assessment as of March 31, 2011, management has determined there was no impairment in the carrying value of long-lived assets.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740,“Income Taxes”which requires an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. Deferred tax assets include tax loss and credit carry forwards and are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company adopted the FASB Interpretation on accounting for uncertainty in income taxes. The interpretation prescribes a measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Additionally, the interpretation provides guidance regarding uncertain tax positions relating to derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company will classify any interest and penalties associated with income taxes as interest expense.
Revenue Recognition
The Company recognizes revenues through its consolidated fully owned subsidiary. Revenues are recognized from product sales upon delivery, at which time title passes to the customer provided that there are no uncertainties regarding customer acceptance, persuasive evidence of an arrangement exists, the sales price is fixed and determinable and collectability is deemed probable.
Advertising Costs
Advertising costs are charged to operations when incurred.
Share-Based Compensation
The Company has adopted ASC 718-20 (formerly SFAS No. 123R, Share-Based Payment -revised 2004) (“ASC718-20”) and related interpretations which establish the accounting for equity instruments exchanged for employee services. Under ASC 718-20, share-based compensation cost is measured at the grant date based on the calculated fair value of the award. The expense is recognized over the employees’ requisite service period, generally the vesting period of the award.
Segment Information
Based on the criteria established by ASC Topic 280 “Segment report” (formerly SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”), the Company uses the management approach for determining which, if any, of its products and services, locations, customers or management structures constitute a reportable business segment. The management approach designates the internal organization that is used by management for making operating
decisions and assessing performance as the source of any reportable segments. As of March 31, 2011, the Company mainly operated in two principal segments – development of the rebreather system and sales of polyurethane elastomer products. The rebreather system is still under development and has not generated any revenue. The following tables present summarized information by segments:
| | | | | | |
| | Six Months Ended March 31, |
| | 2011 | | 2010 |
Revenues from external customers | | | | | |
| Rebreather | | $ �� - | | | $ - |
| Polyurethane | 1,728,901 | | | 1,115,059 |
| | | $ 1,728,901 | | | $ 1,115,059 |
| | | | | | |
Cost of sales | | | | | |
| Rebreather | | $ - | | | $ - |
| Polyurethane | 1,414,803 | | | 994,373 |
| | | $ 1,414,803 | | | $ 994,373 |
| | | | | | |
Gross Profit | | | | | |
| Rebreather | | $ - | | | $ - |
| Polyurethane | 314,098 | | | 120,686 |
| | | $ 314,098 | | | $ 120,686 |
| | | | | | |
Selling, general and administrative expenses |
| Rebreather | | $ 207,482 | | | $ 57,140 |
| Polyurethane | 223,924 | | | 254,348 |
| | | $ 431,406 | | | $ 311,488 |
| | | | | | |
Income / (Loss) from operations | | | |
| Rebreather | | $ (207,481) | | | $ (57,140) |
| Polyurethane | 90,173 | | | (133,662) |
| | | $ (117,308) | | | $ (190,802) |
| | | | | | |
| | | March 31, | | | September 30, |
| | | 2011 | | | 2010 |
Total Assets | | | | | |
| Rebreather | | $ 3,165,806 | | | $ 42,852 |
| Polyurethane | 1,002,753 | | | 1,045,136 |
| | | $ 4,168,559 | | | $ 1,087,988 |
Basic and Diluted Per Common Share
The Company has adopted ASC 260-10, “Earnings per Share,” (EPS) which requires presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying unaudited condensed consolidated financial statements, basic net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing
the net loss for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period. For the three and six months ended March 31, 2011 and 2010, the Company has excluded all common equivalent shares from the calculation of diluted net loss per share as such securities are anti-dilutive.
Significant Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.2010-06 regarding fair value measurements and disclosures and improvement in the disclosure about fair value measurements. This ASU requires additional disclosures regarding significant transfers in and out of Levels 1 and 2 of fair value measurements, including a description of the reasons for the transfers. Further, this ASU requires additional disclosures for the activity in Level 3 fair value measurements, requiring presentation of information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements. This ASU is effective for fiscal years beginning after March 15, 2010, and for interim periods within those fiscal years. The Company does not expect the adoption of this ASU to have a material impact on our financial statements.
In February 2010, the FASB issued ASU No. 2010-09 (“ASU 2010-09”) as amendments to certain recognition and disclosure requirements. The amendments remove the requirement for an SEC filer to disclose a date in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. Those amendments remove potential conflicts with the SEC’s literature. All of the amendments in ASU 2010-09 were effective upon issuance for interim and annual periods. The adoption of ASU 2010-09 did not have a material impact on the Company’s consolidated financial statements
In March 2010, the FASB issued ASUNo. 2010-11, which is included in the Codification under ASC 815, “Derivatives and Hedging” (“ASC 815”). This update clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Only an embedded credit derivative that is related to the subordination of one financial instrument to another qualifies for the exemption. This guidance is effective for interim and annual reporting periods beginning January 1, 2010. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In August 2010, the FASB issued ASU No. 2010-22, which amended various SEC paragraphs in the Codification based on external comments received and the issuance of Staff Accounting Bulletin (“SAB”) 112, which amended or rescinded portions of certain SAB topics.
NOTE 2 – GOING CONCERN
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As of March 31, 2011 the company had a accumulated deficit of $(3,306,931) and a net loss of $(45,181) for the quarter then ended. These matters create
substantial doubt about the Company’s ability to continue as a going concern. For the quarter ended March 31, 2011, the Company is able to pay its obligations to vendors from funds raised from issuance of convertible notes. The Company intends on financing its future development activities from the same sources, until such time that funds provided by operations are sufficient to fund working capital requirements.
NOTE 3 – INVENTORY
Inventory consisted of the following:
| | | |
| March 31, 2011 | | September 30, 2010 |
| | | |
Raw material | $ 273,305 | | $ 232,962 |
Work in process | 39,557 | | 41,513 |
Finished goods | 118,185 | | 67,996 |
| 431,047 | | 342,471 |
Less allowance for obsolete inventory | (9,795) | | (9,795) |
| | | |
| $ 421,252 | | $ 332,676 |
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
| | | |
| March 31, 2011 | | September 30, 2010 |
Machinery & equipment | $ 237,377 | | $ 237,377 |
Tooling | 139,138 | | 139,138 |
Computer equipment | 94,383 | | 94,383 |
Leasehold improvements | 38,720 | | 38,720 |
Furniture, fixtures and office equipment | 17,033 | | 17,033 |
| 526,651 | | 526,651 |
Less accumulated depreciation | 500,112 | | 494,412 |
| | | |
| $ 26,539 | | $ 32,239 |
NOTE 5 – INTANGIBLE ASSET
In February 2011 the Company issued a convertible note payable (see Note 8) to acquire an unpatented rebreather technology from an unrelated party. The Company intends to manufacture and sell these systems for use in non-pressurized sport and military subs. Amortization expense approximated $26,250 for the six months ended March 31, 2011.
NOTE 6 – LINE OF CREDIT
The Company has a line of credit agreement with a bank. The maximum borrowing is $100,000. Interest is calculated at prime plus 1.5% (with an interest rate floor of 6.5%) and is paid monthly.
The agreement expires December 5, 2011 at which time the entire principal balance is due. The line of credit is personally guaranteed by the Trust of the former owner of Elasco, who is the CEO of the Company.
NOTE 7 – NOTES PAYABLE – RELATED PARTIES
Concurrent with the sale of Elasco to Blu Vu, the previous owner, Henry Larrucea, who is the current officer and director of the Company, agreed to exchange his outstanding demand note, with an outstanding balance of $856,750, for a 10 year note at 5% for $600,000. The difference of $256,750 was recorded as a gain in other income in the year ended September 30, 2009. Total interest paid or accrued for the shareholder for the three months ending March 31, 2011 was $7,341 and the balance of the note as of March 31, 2011 was $587,684. Payments have not been made on this note since July 2009. There was $50,492 of accrued interest at March 31, 2011.
Mr. Larrucea also received a promissory note for the stock of Elasco for $540,000. The note is due in monthly payments of $10,000 and bears interest at 4.23%. The note is secured by the stock of Elasco. The balance of the note as of March 31, 2011 was $507,425. Payments have not been made on this note since August 2009. There was $35,895 of accrued interest at March 31, 2011.
Both of these notes are currently in default due to non-payment of principal and interest. Upon default the loans become due on demand. Mr. Larrucea has granted a waiver which waives the default under the terms of the notes and releases the company from liquidated damages provision.
The Company has two notes payable to shareholders for $20,000 and $19,500, which it assumedunder the May 26 Blu Vu asset purchase agreement. These notes are due on May 28, 2011 and bear interest at 5.0%. Both notes are convertible into shares of the Company’s common stock at a conversion discount of 70% of the stocks bid price but in no event shall the conversion price be less than par value of $0.001.
The Company has nine notes payable to shareholders for a total of $136,000. These notes are due ranging from September 17, 2010 to March 28, 2011 all bearing interest at 5.0%. All nine notes are convertible into shares of the Company’s common stock at a conversion discount of 70% of the stocks bid price but in no event shall the conversion price be less than par value of $0.001. None of these notes are considered derivatives. As of March 31, 2011 these notes are in default and the Company has extended or is in the process of extending these for six months.
As of March 31, 2011, the Company had authorized unissued common stock of 9,241,521,020 shares, which is sufficient to cover shares to be issued upon conversion of all convertible notes.
NOTE 8 – CONVERTIBLE NOTES PAYABLE
In October, November and December 2010, the Company entered into securities purchase agreements (the “Purchase Agreements”) with an investor and issued three 10% convertible promissory notes with face amounts of $35,000, $30,000 and $12,500 respectively (the
“Convertible Notes”) and received cash proceeds of $77,500. The Notes mature in eight months from the date of issuance, and provide for nominal interest at the rate of ten (10%) percent per annum. The Notes may be converted into unregistered shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at the Conversion Price, as defined below, in whole, or in part, at any time beginning 180 days after the date of the Notes, at the option of the holder. The Conversion Price shall be equal to 50% multiplied by the Variable Conversion Rate which is equal to the average of the three (3) lowest closing bid prices of the Common Stock during the ten (10) trading day period prior to the date of conversion.
In January 2011, the Company entered into securities purchase agreements (the “Purchase Agreements”) with an investor and issued 8% convertible promissory notes with a face amount of $50,000 (the “Convertible Note”) and received cash proceeds of $50,000. The Note matures in ten months from the date of issuance, and provide for nominal interest at the rate of eight (8.0%) percent per annum. The Note may be converted into unregistered shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at the Conversion Price, as defined below, in whole, or in part, at any time beginning 180 days after the date of the Notes, at the option of the holder. The Conversion Price shall be equal to 50% multiplied by the Variable Conversion Rate which is equal to the average of the three (3) lowest closing bid prices of the Common Stock during the ten (10) trading day period prior to the date of conversion.
As mentioned above, the convertible notes payable only become convertible 180 days from issuance, accordingly, as of March 31, 2011, and until the notes payable become convertible, there were no derivative liability recorded as a result of the conversion feature.
In February 2011, the Company purchased technology from an unrelated party for $3,150,000 by issuing a 5% convertible promissory note. The Note is due on demand, but not sooner than six months from the date of issuance, and provides for nominal interest at the rate of eight (5.0%) percent per annum. The Note may be converted into unregistered shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at the Conversion Price, as defined below, in whole, or in part, at any time beginning 180 days after the date of the Notes, at the option of the holder. The Conversion Price shall be equal to 30% multiplied by the Variable Conversion Rate which is equal to the average of the three (3) lowest closing bid prices of the Common Stock during the ten (10) trading day period prior to the date of conversion.
As mentioned above, the convertible notes payable only become convertible 180 days from issuance, accordingly, as of March 31, 2011, and until the notes payable become convertible, there were no derivative liability recorded as a result of the conversion feature.
NOTE 9 – CONCENTRATION OF CREDIT RISK
A material part of the Company’s account receivables is outstanding with five customers. The amount owed by these customers at March 31, 2011 was $396,366, approximately87% of the Company’s receivables. Sales to the top five customers represented 84% of total sales. The amount owed by these customers at September 30, 2010 was $518,092, approximately 78% of the Company’s receivables. Sales to the top five customers represented 83% of total sales for the quarter ended March 31, 2010.Sales are concentrated in the western United States.
For the three months ended March 31, 2011 and 2010, the Company purchased approximately $138,000 and $136,000, respectively, of raw material from five suppliers, representing 43% and 46%, respectively, of the Company’s total purchases. As of March 31, 2011 and September 30, 2010, amounts owed to these five suppliers were approximately $146,048 and $186,000 representing 64% and 41%, respectively, of the total accounts payable.
NOTE 10 – COMMITMENTS – RELATED PARTIES
The Company leases a manufacturing and office facility from a related partnership as an operating lease which expires in 2015. This lease currently requires monthly payments of $5,533 plus related insurance and maintenance. Rental expense under this lease for the three and six months ended March 31, 2011 was $16,599 and $33,198, respectively, all of which was paid to a related party. Total future lease payments through September 30, 2015 are $298,782.
The Company has an employment agreement with Jeff Bozanic to develop its re-breather technology. The agreement is for three years starting January 1, 2010 at a cost of $10,000 per month. As of March 31, 2011, the Company owed Mr. Bozanic $150,000. This amount is classified as accrued expenses – related parties on the balance sheet.
Prior to the asset purchase agreement between Blu Vu and Deltron, Blu Vu was in negotiations with Radikal, AS (“Radikal”), the owner of intellectual property involving rebreather technology, to purchase its intellectual property involving said technology. At that time, Blu Vu did not own any rebreather technology. No agreement was reached between Blu Vu and Radikal prior to the asset purchase agreement with Deltron. On August 4, 2010, the Company entered into an agreement with Radikal to purchase its intellectual property involving said technology (the “Radikal Agreement”). The Radikal Agreement requires the Company to pay a per unit fee of $35 for at least 500 units per year for 2 years, after which the obligation to Radikal will be fulfilled.
Pursuant to the terms of the Radikal Agreement, Radikal has transferred all U.S. and international patent rights to the Company. If the per unit fee payments are not made when due, Radikal has the right to the return of the intellectual property transferred. Payments for these rights are not required to begin until January 2012.
NOTE 11 – STOCK HOLDER EQUITY
At March 31, 2009 the Company had 5,545,000 shares of common stock, par value $0.001, outstanding. On March 10, 2010, the Corporation’s Board of Directors approved a one hundred-for-one (100:1) forward split of the Corporation’s common stock, par value $0.001 per share. The forward split was for shareholders of record as of the close of business on Friday, April 30, 2010, and the market effective date for the forward stock split was May 3, 2010. As a result of the forward stock split, for every one share of the Corporation’s old common stock shareholders received ninety-nine additional shares of the Corporation’s new common stock. Immediately following the forward split, the number of shares of the Corporation’s outstanding issued common stock was increased from 5,545,000 shares to approximately 554,500,000 shares, par value $0.001.
On May 26, 2010, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Blu Vu Deep Oil & Gas Exploration, Inc., a Nevada corporation. Under the terms of the Agreement, the Company purchased substantially all of the assets of Blue Vu, consisting of, but not limited to, all stock of BluVu’s subsidiary, Elasco, Inc., certain intellectual properties, computer programs and software, contracts, claims and accounts receivables associated with the operation of BluVu’s business of developing underwater deep breathing apparatus. In consideration of the sale of the assets of Blu Vu, the shareholders of BluVu, received restricted common shares of the Company totaling 123,978,980. No other consideration was exchanged in the transaction.
In November 2010, the Company issued 80,000,000 shares to Elasco’s president as a bonus of $10,000 and prepaid salary of $50,000 over the next six months under an Employee Stock Incentive Program (ESIP). This amount is recorded under prepaid expenses on the March 31, 2011 balance sheet.
NOTE 12 – INCOME TAXES
The Company recognizes deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
The Company incurred no income taxes for the periods ended March 31, 2011 and March 31, 2010 except for $800 each year for state franchise taxes. For the three and six months ended March 31, 2011 the Company had incurred a loss and had a state income tax payable of $800 at March 31, 2011. No income tax benefit was recognized as of March 31, 2011 and March 31, 2010 as a result of the valuation allowance applied to deferred tax assets, due to the uncertainty of recognizing any future tax benefits from the NOL.
The Company’s net loss of $228,340 for the six months ended March 31, 2011 will be carried forward to offset future taxable income. As of March 31, 2011, the Company’s federal NOL is approximately $365,000 expiring in 2025, and its California NOL is approximately $275,000 expiring 2015. The Company has book/tax differences of approximately $335,000 comprised of accrued officer’s compensation of $90,000, accrued consulting of $150,000 and accrued interest of $95,000. These differences result in a deferred tax asset of approximately $114,000. The federal and California NOLs result in a deferred tax asset of approximately $110,000.Due to the uncertainty of recognizing any future benefit, the Company has recorded a valuation allowance of $110,000 to offset the deferred tax asset. The valuation allowance increased $78,600 from September 30, 2010, as a result of the uncertainty of utilizing the deferred tax assets.
The deferred tax asset comprised the following at March 31, 2011:
| | | | |
Deferred tax asset: | | |
| | | | |
| Federal benefit of NOL carryover | $ 86,000 |
| California benefit of NOL carryover | 24,000 |
| Accrued officer's compensation | 31,000 |
| Accrued consulting | 51,000 |
| Accrued interest | 32,000 |
| | | | |
| Total | | | 224,000 |
| | | | |
| Valuation allowance | (224,000) |
| | | | |
| Net deferred tax asset | $ - |
The Company recognized approximately no increase in the liability for unrecognized tax benefits. The Company has no tax position as of March 31, 2011 for which the ultimate deductibility is highly certain but for which there is uncertainty about such timing of such deductibility. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the periods presented. The Company had no accruals for interest and penalties at March 31, 2011. The Company’s utilization of any net operating loss carry forward may be unlikely as a result of its continued losses.
NOTE 13 – SUBSEQUENT EVENTS
Subsequent to year end, the Company issued 40,000,000 shares to an employee of Elasco and 28,000,000 to Elasco’s president as prepaid salary over the next four months under an Employee Stock Incentive Program (ESIP).
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
As previously described, we completed an Asset Purchase under which Deltron acquired the assets of Blu Vu Deep Oil & Gas Exploration, Inc. The transaction was treated as a reverse recapitalization, with BluVu’s wholly owned subsidiary, Elasco, Inc. (“Elasco”) becoming the accounting acquirer. Therefore, Deltron assumed the fiscal year end of Elasco of December 31. On August 13, 2010, following the completion of the Asset Purchase Agreement, the Company adopted the fiscal year end of the former shell Company of September 30 for financial reporting purposes.
The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. The discussion reflects the financial condition and results of operations as of and for the period ended March 31, 2011 and 2010. This discussion contains forward-looking statements. Please see “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.
We are a manufacturing company with two distinct business segments polyurethane and rebreather. Our primary business is Elasco which is focused on manufacturing technology for plastic and polyurethane products.Our secondary business segment is focused on the development of deep-sea exploration breathing technology marketed as Blu Vu.
Polyurethane Products
Our polyurethane products are manufactured and sold by our wholly owned subsidiary, Elasco, which makes products for the recreational roller skate and skateboarding markets. They are of the high performance type used by dedicated enthusiasts in those sports. These products are sold to O.E.M. customers, who market and distribute them through channels specific to their individual retail outlets, as well as by direct marketing through their internet sales sites. Most are sold through distribution channels of specialty stores and roller rinks. They are differentiated from the typical product found in larger retail stores in that they are not considered a toy category, but rather a sporting good.
Elasco also produces a variety of industrial products that are used on assemblies and machinery where a long life cycle is needed. Some typical products are exercise equipment rollers, bowling pin setter pads and liners, and fire hydrant seals. Elasco’s polyurethane polymers excel in the gap between rubber and plastics, but can mimic many rubbers and plastics with specific formulations that optimize those characteristics. A recent formula developed exclusively by Elasco uses a natural soy-based resin as an ingredient to make an elastomer that performs like other hydrocarbon derived polyurethanes. This reduces related carbon emissions from the manufacturing process for that resin by 36%. This product is marketed as a green alternative to oil based products, and is finding favor in the youth market that many of Elasco’s products service.
Rebreather System
“Normal” scuba is an open circuit system. Combining a high-pressure cylinder and a demand regulator, a diver inhales gas at ambient pressure, uses a little of the oxygen in the gas, and then exhales. When the diver exhales the gas, it bubbles to the surface, carrying as much as 98% of the original oxygen it contained. The “open circuit” comes from the fact that the exhaled gas is released on every breath.
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The advantage that a rebreather has over “normal” scuba system is that it recirculates the gas a diver is breathing, allowing the diver to breath from the same gas over and over again, after removing the carbon dioxide generated by human metabolism. Rebreathers provide gas to the diver in an optimal mix for the depth at which they are diving. The system adds oxygen and other gases to make up what is consumed. Because the gas is reused, instead of being “thrown away” with every breath, a diver can remain underwater far longer on much less gas. In fact, for some dives, rebreathers can be as much as fifty times more efficient on gas consumption than standard scuba tanks. This minimizes decompression obligations, or in some cases eliminates it for shallower working dives. Less decompression time means more working time, and greater cost efficiency for the project.
In February 2011, the Company purchased technology relating to an invention for submersible boat rebreather systems. The Company intends to manufacture and sell these systems for use in non-pressureized sport and military subs. Typical uses would be in areas where extended times underwater would be beneficial like sport divers, ports and oil and gas equipment inspections, government and military security and university biologist research.
Business operations
As of March 31, 2011, we had an accumulated deficit of approximately $3.3 million, and as of September 30, 2010, our accumulated deficit was approximately $3.1million.We incurred operating losses of $1,109, $106,065, $91,058and $190,802 for the three and six months ended March 31, 2011 and 2010, respectively, and incurred net losses of $45,181 and $159,644and $228,340 and $258,943for those respective periods. We expect our net losses to continue for at least the next couple of years. We anticipate that a substantial portion of our capital resources and efforts will be focused on the scale up due to expansion via acquisition, product development and other general corporate purposes, including the payment of legal fees due to our acquisitions.
As of March 31, 2011, our current liabilities of approximately $4.7 million exceeded our current assets of approximately $1,018,000 by $3,682,000 and our net losses will continue for the foreseeable future. As part of the $4.7 million of current liabilities we have $175,000, of convertible notes to related parties and $3,277,500 of convertible notes to unrelated parties. We are currently planning to issue additional stocks and convertible notes to support our expansion. As a result, the additional equity funding may result in significant dilution to existing stockholders. If adequate funds are not available, we may be required to delay or curtail significantly our development and commercialization activities. This would have a material adverse effect on our business, financial condition and/or results of operations and could ultimately cause us to have to cease operations.
Financial Operations Overview
Sales
Our sales are derived from the sale of plastic and polyurethane products. Customers are generally billed at shipping of products. We currently have not generated any revenues from the sale of rebreather system for the three and six month periods ended March 31, 2011 and 2010.
Cost of Sales
Cost of sales for plastic and polyurethane products represents the cost of direct labor, raw material, supplies and other miscellaneous support expenses. No cost of sales for rebreather system is recorded because we have not generated any revenues from the sale of rebreather system.
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Selling, General and Administrative
Our selling expenses consist primarily of personnel, media, support and travel costs to inform user organizations and consumers of our products. Our general and administrative expenses consist primarily of personnel, occupancy, legal, consulting and administrative and support costs for our operations.
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ from those estimates under different assumptions or conditions. Our significant accounting policies are described in Note 1 to our unaudited condensed consolidated financial statements included in Item 1 of this report. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our condensed consolidated financial statements.
Revenue Recognition
Sales for our polyurethane products are recognized when our plastic or polyurethane products are shipped to our customers. Currently for rebreather system, there have not been any revenues recognized from the sale of its products.
Results of Operations for the Three and Six Months Ended March 31, 2011 and 2010
As earlier described, we operate in two business segments:Polyurethane products and Rebreather system. OurElasco business focuses on the delivery of plastic and polyurethane product to our customer. Its principal business is manufacturing and selling of open cast molded polyurethane elastomer products such as skateboard, roller skate, and industrial wheels. Our Rebreather system, which is marketed as Blu Vu, is engaged in the potential manufacture and mass-market of proprietary breathing equipment developed specifically for the oil and gas, mining and safety industries, and military and recreational divers.
The following table presents consolidated statement of operations data for each of the periods indicated as:
| | | | | | | | | |
| | Three months ended | | |
| | | March 31, | | Percent |
| | | 2011 | | 2010 | | Change |
| | | (Unaudited) | | (Unaudited) | | |
Sales | | | $ 823,500 | | $ 603,503 | | 36% |
Cost of sales | | | 636,787 | | 559,311 | | 14% |
Gross profit | | | 186,713 | | 44,192 | | 323% |
| | | | | | | |
Selling, general and administrative | | | 214,072 | | 150,257 | | 42% |
| | | | | | | |
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| | | | | | | | | |
Operating loss | | | (27,359) | | (106,065) | | (74)% |
| | | | | | | | | |
Other expense, net | | | (44,072) | | (53,579) | | (18)% |
| | | | | | | | | |
Net loss | | | $ (71,431) | | $ (159,644) | | (55)% |
| | | | | | | | | | |
| | | Six months ended | | |
| | | March 31, | | Percent |
| | | 2011 | | | 2010 | | Change |
| | | (Unaudited) | | | (Unaudited) | | |
Sales | | | $ 1,728,901 | | | $ 1,115,059 | | 55% |
Cost of sales | | | 1,414,803 | | | 994,373 | | 42% |
Gross profit | | | 314,098 | | | 120,686 | | 160% |
| | | | | | | | |
Selling, general and administrative | | | 431,406 | | | 311,488 | | 38% |
| | | | | | | | |
Operating loss | | | (117,308) | | | (190,802) | | (39)% |
| | | | | | | | | | |
Other expense, net | | | (136,447) | | | (68,141) | | 100% |
| | | | | | | | | | |
Net loss | | | $ (253,755) | | | $ (258,943) | | (2)% |
Sales
With respect to our polyurethane business, our sales increased by $219,997 for the three months and $613,842 for the six months ended March 31, 2011, compared to the same period in 2010, due to recovery in the economy and introduction of our new products to our current customer base.
In respect to our rebreather product, we have not produced sales as of March 31, 2011.
Cost of Sales
Cost of sales consists of payroll, raw material, supplies and other miscellaneous costs for the Polyurethane products. For the three-month period ended March 31, 2011, costs of sales of $636,787 consist primarily of labor cost of $295,213, raw material cost of $322,840 and other costs of $18,734.For the three month period ended March 31, 2010, cost of sales of $559,311 consisted primarily of labor costs of $227,609, raw material cost of $301,257, and other costs of $30,445.For the six-month period ended March 31, 2011, costs of sales of $1,414,803 consist primarily of labor cost of $606,053, raw material cost of $729,545 and other costs of $79,205.For the six-month period ended March 31, 2010, cost of sales of $994,373 consisted primarily of labor costs of $460,306, raw material cost of $464,301, and other costs of $69,766.We expect costs of sales will increase as an absolute number as more plastic and polyurethane products are produced. However, we expect the cost of sales to decrease as a percentage of revenues as we improve our operating efficiency and increase the automation of certain processes.
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Selling, General and Administration
Selling, general and administrative expenses associated with our polyurethane business consist primarily of payroll costs, rental fee, professional fee, insurance, and other expense. For the three months ended March 31, 2011, selling, general and administrative expensesincluded the following: payroll and benefits $34,870, professional fees $75,411, rent expense $16,599, insurance expenses $12,395, amortization expense $26,250 and other expenses $48,547. For the comparable period in 2010 expenses were as follows: payroll and benefits $18,633, rent expense $16,599, consulting $14,538, professional fee $32,436, insurance expenses $6,493 and other expenses $61,558.
For the six months ended March 31, 2011, selling, general and administrative expenses included the following: payroll and benefits $124,099, consulting fee $36,000, professional fees $183,906, rent expense $33,198, insurance expenses $14,685, amortization expense $26,250 and other expenses $13,000. For the comparable period in 2010 expenses were as follows: payroll and benefits $56,446, rent expense $33,198, consulting $28,249, professional fee $61,295, insurance expenses $8,996 and other expenses $123,304.
Comparing the three months ended March 31, 2011, with the same period in 2010, the increase in selling, general and administrative expenses were primarily due to an increase in professional fees. Other expenses remained consistent for the three months ended March 31, 2011 and 2010.General and administrative expenses associated with our Blu Vu rebreather system consist primary of consulting and professional fees.
Other expense
For the three months ended March 31, 2011 and 2010, we incurred other expenses of $44,072 and $53,579, which consisted primarily of interest expense
Net Loss
The decrease in net loss of $88,213 for the three months ended March 31, 2011, compared to the same period in 2010, was a net result of: an increase in our polyurethane product sales, an increase in gross profit due to efficiencies relating to increased sales and a decrease in interest expense due to the decrease of the beneficial conversion feature of $39,500 recorded in 2010.
Liquidity and Capital Resources
Since our inception, we have incurred significant losses. As of March 31, 2011, we had an accumulated deficit of approximately $3.3 million, and as of September 30, 2010, our accumulated deficit was approximately $3.1 million. We have not yet achieved profitability and anticipate that we will continue to incur net losses for the foreseeable future. We expect that our sales and general and administrative expenses will continue to grow and, as a result, we will need to generate significant product revenues to achieve profitability. We may never achieve profitability.
Due to the continued losses incurred from our operations, as of March 31, 2011, we had approximately $71,559 in cash and cash equivalents and a working capital deficit of $220,366 compared to $1,852 in cash and cash equivalents and a working capital deficit of $253,061 at September 30, 2010.
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Operating Capital and Capital Expenditure Requirements
Our continued operating losses and limited capital raise substantial doubt about our ability to continue as a going concern, and we need to raise substantial additional funds in the next 12 months in order to continue to conduct our business. Until we can generate a sufficient amount of revenues to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through public or private equity offerings, debt financings, borrowings or strategic collaborations.
We need additional funds to continue our operations and will need substantial additional funds before we can generate revenue from our Blu Vu rebreather system. We are currently exploring additional sources of capital; however, we do not know whether additional funding will be available on acceptable terms, or at all, especially given the economic conditions that currently prevail. In addition, any additional equity funding may result in significant dilution to existing stockholders, and, if we incur additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities.
We expect to continue to incur operating losses in the future and to make capital expenditures to expand our polyurethane operations and to market our Blu Vu rebreather system (including upgrading our plant equipment) and to scale up our sales efforts. We expect that our existing cash will be used to fund working capital and for capital expenditures and other general corporate purposes, including the repayment of debt incurred as a result of our acquisitions. Although since September 30, 2010, we have raised gross proceeds of $127,500 through the sale of convertible promissory notes, we anticipate that our cash on hand (including the proceeds from these promissory notes) and cash generated through our operations will not be sufficient to fund our operations for the next 12 months. In addition we will have to repay the outstanding notes plus interest. We therefore anticipate raising additional funds in the near future.
Sources of Liquidity
Since our inception substantially all of our operations have been financed primarily from sales of our polyurethane products and equity and debt financings. For the three and six months ended March 31, 2011, we had received $50,000 and $127,500 from issuance of convertible notes.
Cash Flows
Net cash used in operating activities was $14,302 for the three months ended March 31, 2011, compared to $14,148 for the same period ended March 31, 2010.The decrease in cash of $14,302 was primarily attributable to the loss for the quarter of 45,181.
There was no net cash used in investing activities for the three months ended March 31, 2011and 2010.
Net cash proceeds from financing activities for the three months ended March 31, 2011, was $50,000 which was derived from the issuance of convertible notes.
For the six months ended March 31, 2010, proceeds from sales of common stocks were $65,000, net of offering costs, through a Regulation S offering.
Contractual Obligations and Commercial Commitments
As of March 31, 2011, we have a contractual obligation to pay the line of credit of $100,000 with an interest rate of prime plus 1.5%. There was also a total remaining balance on two promissory notes of
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$1,095,110 due to a shareholder and officer in connection with our acquisitions. The notes bear interests at a rate of 5% and 4.23% per annum, respectively.Our total lease obligations are $315,381 for our Southern California facility, which expires on December 31, 2015.
Income Taxes
Since inception, we have incurred operating losses and, accordingly, have not recorded a provision for federal income taxes for any periods presented. As of March 31, 2011, we had net operating loss carryforwards for federal income tax purposes of $365,000. If not utilized, the federal net operating loss carryforwards will expire in 2025. Utilization of net operating loss and credit carryforwards may be subject to a substantial annual limitation due to restrictions contained in the Internal Revenue Code that are applicable if we experience an “ownership change”. The annual limitation may result in the expiration of our net operating loss and tax credit carryforwards before they can be used.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements or financing activities with special purpose entities.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Our Disclosure Controls
Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, Randall Fernandez, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective and identified the following material weaknesses:
1. The Company has insufficient internal personnel resources and technical accounting and reporting expertise within the Company’s financial closing and reporting functions;
2. Due to our small size, the Company did not maintain effective internal controls to assure segregation as the same employee was responsible for initiating and recording of transactions, thereby creating the segregation of duties weakness; and
3. The Company did not have an independent board of directors for oversight of the Company’s operations and financial reporting process.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2011, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
In the ordinary course of our business, we may from time to time become subject to routine litigation or administrative proceedings which are incidental to our business. We are not a party to nor are we aware of any existing, pending or threatened lawsuits or other legal actions involving us.
ITEM 1A.
RISK FACTORS
Not applicable.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We did not issue any equity securities during the quarter ended March 31, 2011.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
[REMOVED AND RESERVED]
ITEM 5.
OTHER INFORMATION
Not applicable.
ITEM 6.
EXHIBITS
Exhibit No.
Description
31.1 / 31.2
Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Executive and Financial Officer
32.1 / 32.2
Rule 1350 Certification of Principal Executive and Financial Officer
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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.
DELTRON, INC.
Dated: May 16, 2011
By:/s/ Henry Larrucea
Henry Larrucea
President, Principal Executive and Financial Officer
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