SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended February 28, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number 0-24506
Delta-Omega Technologies, Inc.
(Exact name of small business issuer as specified in its Charter)
Colorado 84-1100774
(State of Incorporation) (I.R.S. Employer Identification Number)
119 Ida Road, Broussard, Louisiana 70518
(Address of principal executive offices) (Zip Code)
(318) 837-3011
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes...X... No........
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date:...14,306,644 shares of common
stock as of April 10, 1998
This document is comprised of 11 pages
Delta-Omega Technologies, Inc.
Index to Quarterly Report
Part I
Financial Statements
Item 1. Financial Statements Page
Consolidated Balance Sheet as of
February 28, 1998.. . . . . . . . . . . . . 2
Consolidated Statements of Operations,
three and six months
ended February 28, 1998 and 1997.. . . . . . 3
Statements of Cash Flows, six months ended
February 28, 1998 and 1997. . .. . . . . . . 4
Notes to consolidated financial
statements . . . . . . . . . . . . . . . . . 5
Item 2. Management's discussion and analysis
of financial condition
and results of operations. . . . . . . . . . 5
Part II
Other Information
Item 1. Legal Proceedings. . . . . . . . . .. . . . . . 9
Item 2. Changes in Securities . . . . . . . . . . . . . 9
Item 3. Defaults Upon Senior Securities. . . . . . . . 9
Item 4. Submission Of Matters To A Vote
Of Security Holders . . . . . . .. . . . . . 9
Item 5. Other Information. . . . . . . . . . . . .. . . 9
Item 6. Exhibits And Reports on Form 8-K . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 10
Part I. Item 1. Financial Statements
Delta-Omega Technologies, Inc.
Consolidated Balance Sheet
(Unaudited)
ASSETS
February 28,
1998
____________
Current Assets
Accounts and notes receivable
Trade, net of allowance for losses 81,195
Other 4,118
Inventories 219,803
Prepaid expenses 7,916
_________
Total current assets 313,032
Property and equipment, net of
accumulated depreciation 440,861
Intangible assets, net of
accumulated amortization 137,333
Other assets 10,658
_________
Total assets $901,884
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable 250,137
Bank overdraft 16,039
Current maturities of long-term debt and leases 18,510
Note Payable-due to James V. Janes, III 30,000
Other current and accrued liabilities 21,606
__________
Total current liabilities 336,292
Long-term debt and leases, net of
current maturities 32,136
Shareholders' equity:
Convertible, 7 percent cumulative,
non-participating preferred stock, $.001
par value, shares authorized, 40,000,000;
issued and outstanding 1,590,700 series B,
2,471,667 series C 4,012
Common stock, $.001 par value, shares authorized,
100,000,000; issued and outstanding 13,230,235 13,320
Additional paid-in capital 10,582,994
Retained deficit (10,066,870)
______________
Total shareholders' equity 533,456
______________
Total liabilities and shareholders' equity $901,884
==============
See accompanying notes to consolidated financial statements.
Delta-Omega Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
February 28, February 28,
1998 1997 1998 1997
______ ______ _____ ____
Net sales
and gross revenues
Net product sales $262,807 $ 303,475 $584,836 $599,085
Cost of sales
and revenues 193,943 222,442 407,843 443,902
__________ ___________ _________ _________
Gross profit 68,864 81,033 176,993 155,183
Cost and expenses
Selling, general
and administrative 248,823 266,794 564,793 547,275
Research and
development 126,903 79,005 222,120 97,311
__________ ____________ ________ ________
Operating Loss (306,862) (264,766) (609,920) (489,403)
Other income, net 1,785 8,590 4,203 16,681
Interest expense (1,363) (1,367) (3,991) (3,079)
___________ ___________ ________ _________
Net loss
available to
common
shareholders $(306,440) $(257,543) $(609,708) $(475,801)
=========== ============ =========== ===========
Weighted average
shares outstanding 13,295,231 12,755,320 13,262,733 12,743,597
=========== ============ =========== ===========
Net loss per
common share $(.02) $(.02) $(.04) $(.04)
========== ============ =========== ============
See accompanying notes to consolidated financial statements.
Delta-Omega Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
February 28,
1998 1997
_________ _______
Net cash used in
operating activities $(366,207) $(491,943)
Cash flows from
investing activities:
Property acquisitions (15,651) (49,235)
Patent costs (2,894) (15,427)
Proceeds from sale of
property and equipment 0 800
____________ ___________
Net cash flows used
in investing activities (18,545) (63,862)
Cash flows from
financing activities:
Proceeds from borrowing 30,000 25,836
Principal payments on
bank notes payable (3,854) (4,200)
Capital lease financing
and other notes (4,007) (12,031)
______________ _____________
Net cash flows provided by (used in)
financing activities 22,139 9,605
Net increase (decrease) in
cash and equivalents (362,613) (546,200)
Cash and equivalents,
beginning of period 346,574 1,536,152
Cash and equivalents,
end of period $(16,039) $989,952
================ ================
See accompanying notes to consolidated financial statements.
Delta-Omega Technologies, Inc.
Notes to Consolidated Financial Statements
February 28, 1998
Note A: Basis of presentation
The financial statements presented herein include the accounts of Delta-
Omega Technologies, Inc. and Delta-Omega Technologies, Ltd. Intercompany
balances and transactions have been eliminated in consolidation.
The financial statements presented herein have been prepared by the Company
in accordance with the accounting policies in its annual 10-KSB report for the
year ended August 31, 1997 and should be read in conjunction with the notes
thereto. Results of operations for the interim periods are not necessarily
indicative of results of operations which will be realized for the fiscal year
ending August 31, 1998.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary for a fair presentation of
operating results for the interim periods presented have been made.
Interim financial data presented herein are unaudited.
Note B: Shareholders'equity
In January 1998, the Company's board of directors authorized lowering the
exercise price of the outstanding Class "E" Warrants from $1.50 per share to
$.75 per share and called the warrants. The holders of the Class "E" Warrants
had 30 days to exercise their warrants, otherwise the warrants would expire at
the end of the 30 day period. At the end of the 30 day period, none of the
holders of the 1,062,917 outstanding Class "E" Warrants converted and all of
the warrants expired on February 14, 1998.
The Company's board of directors also authorized selling up to 2 million
shares of treasury common stock at the best negotiated price. In March 1998,
the Company completed a special private placement and raised approximately
$740,000. The Company sold 986,413 shares of common stock solely to
accredited and sophisticated investors at an offering price of $.75 per share.
During the first quarter of fiscal 1998, Baer & Company, L.L.C. was issued
39,996 shares of $.001 par value common stock for expenses incurred from July
1996 through November 1997 while raising funds on behalf of the Company.
27,370 shares were issued at a price of $.43775 per share. The remaining
12,626 shares were issued at a price of $.6661 per share. The prices per
share are based on the average of the bid and last trade value of the
Company's stock during the period in which the fund raising expenses were
incurred.
Item 2. Management's discussion and analysis of financial condition and
results of operations
This Quarterly Report on Form 10-QSB includes certain statements that may
be deemed to be "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements, other than statements of
historical facts, included in this Form 10-QSB that address activities, events
or developments that the Company expects, believes or anticipates will or may
occur in the future, including such matters as future capital, research and
development expenditures (including the amount and nature thereof), repayment
of debt, business strategies, expansion and growth to the Company's operations
and other such matters are forward-looking statements. These statements are
based on certain assumptions and analyses made, by the Company in light of its
experience and its perception of historical trends, current conditions,
expected future developments and other factors it believes are appropriate in
the circumstances. Such statements are subject to a number of assumptions,
risks and uncertainties, including general economic and business opportunities
(or lack thereof) that may be presented to and pursued by the Company, changes
in laws or regulations and other factors, many of which are beyond the control
of the Company. Readers are cautioned that any such statements are not
guarantees of future performance and that actual results or developments may
differ materially from those projected in the forward-looking statements.
RESULTS OF OPERATIONS
Net sales for the second quarter of Fiscal 1998 decreased by $40,600 or
13.3% as compared to the second quarter of Fiscal 1997. During this period,
the Company's aircraft cleaning compound sales to the U.S. Air Force decreased
as operating units of the U.S. Air Force ordered less product of the Military
Specification (Mil-Spec.) type to which the Company's product is qualified.
The balance of the decrease in revenues was due primarily to a loss of tank
and equipment cleaning business from the Company's largest contract blending
customer. The Company's customer was purchased by a corporation that
manufactures similar products, and management believes that some of these
products were integrated into their operation.
Net sales for the six month period were less than the comparable period of
Fiscal 1997 by $14,200 or 2.4%. During this period, sales in the emergency
response division increased $90,000 or 40% subsequent to the attainment of
three (3) additional Underwriters Laboratories listings. This increase
somewhat offset the decreases in sales to the U.S. Air Force and tank and
equipment cleaning companies.
Cost of sales for the second quarter of Fiscal 1998 decreased $28,500 or
12.8% compared to the same period of Fiscal 1997. As a percentage of sales,
cost of sales remained relatively constant.
The decrease in cost of sales was attributable to decreased sales volume.
Due to decreased sales in the second quarter of Fiscal 1998, the Company
lacked full plant capacity. Management believes that as the Company expands
its Industrial and Institutional sales effort, sales will increase; therefore
cost of sales as a percentage of sales will decrease as capacity is added.
On a year-to-date basis, cost of sales decreased $36,000 or 8.1%. As a
percentage of sales, cost of sales remained relatively constant.
Selling, general and administrative expenses for the three and six months
ended February 28, 1998 totaled $248,823 and $564,793 respectively as compared
to $303,475 and $599,085 for the same periods in 1997. The decrease in
selling, general and administrative during the second quarter of Fiscal 1998
was due to a reduction in sales personnel.
Research and Development expenses for the second quarter of Fiscal 1998
increased $47,898 or 37.7% compared to the same period in Fiscal 1997 from
$79,005 to $126,903. For the six month period, research and development
expenses increased $124,809 or 56% from $97,311 to $222,120.
The increase in research and development expenses was due primarily to
expenses incurred relative to the demonstration of the Company's Base Fluid
Destruction (BFD) process that utilizes proprietary surfactant formulations.
The balance of the increase in research and development expenses is due to
the expenses incurred in association with the three (3) Underwriters
Laboratories (U.L.) listings received on the Company's firefighting foam
concentrate line of products.
Increased research and development expenses and lack of sufficient sales
resulted in a net loss available to common shareholders of $306,862 for the
current period in Fiscal 1998 compared to the net loss of $264,766 for the
same period in fiscal 1997.
Other income consisting primarily of interest income for the three and six
months ended February 28, 1998 was $1,785 and $4,203 respectively, a decrease
of $6,805 and $12,478 respectively when compared with the same periods in the
prior year. This resulted from a decrease in investment cash.
Interest expense was $1,363 and $3,991 respectively for the three and six
months ended February 28, 1998 compared to $1,367 and $3,079 for the same
periods in the prior fiscal year. The increase in interest expense is due to
short term debt incurred with the financing of international insurance
coverage required to work abroad.
LIQUIDITY AND CAPITAL RESOURCES
The Company considers cash and cash equivalents as its principal measure of
liquidity. These items total ($16,039) at February 28, 1998. Net cash used
by operating activities in the current period was $366,207. The Company's
primary cash requirements are for operating expenses, particularly Research
and Development expenses, raw material purchases and capital expenditures.
Since the Company commenced operations, it has incurred recurring losses and
negative cash flows from operations. The Company does not have sufficient
working capital available to maintain operations at their current levels.
These factors raise substantial doubt about the Company's ability to continue
as a going concern. The Company's ability to continue as a going concern is
dependent upon obtaining additional capital investments or generation of
adequate sales revenue and profitability from operations.
To enhance its liquidity, the Company completed a special private offering
to accredited and sophisticated investors in March 1998. The Company sold
986,413 shares of treasury common stock and raised approximately $740,000.
The Company has paid overdue trade accounts payable and intends to use the
remaining proceeds to fund operations until sufficient sales are generated.
If operations do not generate sufficient sales, management has the option to
sell the remaining treasury common stock, approximately 1 million shares,
authorized by the board of directors, or restructure the organization's
personnel and associated expenses to minimize negative cash flow.
For immediate capital requirements, the Company negotiated a loan from a
member of the board of directors. The note payable is reflected in the
current liability section in the consolidated balance sheet. Proceeds from
the March 1998 special private offering will be used to repay the loan.
The Company has successfully field tested a unique technology for
recovering barite and oil from spent drilling muds. This process technology
utilizes a proprietary cleaning mixture which separates the oil from the
barite within an aqueous medium. The process recovers more than 95% of the
barite at high purity levels. This material can be reused as a constituent in
the production of water or oil based drilling muds. The synthetic oil
recovered in this process can be sold or reused in mud applications. The mud
recycling process (MRP) offers significant cost savings over current
management practices involving spent drilling muds. The market value of the
recovered barite and oils is expected to more than offset processing costs.
The Company, working on location in Colombia with M-I Drilling Fluids, L.L.C.,
received final approval and the associated work order to demonstrate the
process. No estimates of revenues is possible in this early stage of
development because the results of this technology have to be commercially
explored.
The Company entered into a exclusive worldwide license agreement with
Gradient Technology, Inc., for a leading edge portfolio of patent pending
demil "conversion" technologies to address the U.S. Government's drive toward
"resource recovery and reuse" in demilitarization operations.
Demilitarization or "demil" is a term used to describe the removal of
conventional munitions, including bombs, rockets, torpedos and shells from the
inventory of stored ammunition. The blending of these licensed technologies
with the Company's highly advanced chemical process and separation know-how
should position the Company to offer cost efficient explosive conversion
and/or recovery services to the U.S. Government.
The Company has also completed a worldwide strategic alliance with
Nalco/Exxon Energy Chemicals, L.L.C. This strategic alliance is designed to
strengthen both the Company's product lines and research capabilities in the
expanding oil exploration market.
The Company continues to expand its industrial and institutional cleaning
market. Specifically, the Company has entered the fleet maintenance market
and the concrete cleaning and restoration markets. The Company's materials
offer safe, effective alternatives to the caustic and acid based materials
currently being utilized in the marketplace. These markets have experience
minimal competitive pressure over the last decade and are primed and ready to
accept a new source for its product stream.
Management believes, although no assurances can be made, that sales will
increase and cash flows from operations will improve in fiscal year 1998.
The Company has no unused credit facilities at this time.
Part II
Other Information
Part II. Item 1. Legal Proceedings
not applicable
Item 2. Changes in Securities
not applicable
Item 3. Defaults Upon Senior Securities
not applicable
Item 4. Submission Of Matters To Vote Of Security Holders
not applicable
Item 5. Other information
not applicable
Item 6. Exhibits And Reports On Form 8-K
a) Exhibits
not applicable
b) Reports On Form 8-K
not applicable
SIGNATURES
The financial information furnished herein has not been audited by an
independent accountant; however, in the opinion of management, all adjustments
(only consisting of normal recurring accruals) necessary for a fair
presentation of the results of operations for the three months ended November
30, 1997 have been included.
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.
Delta-Omega Technologies, Inc.
(Registrant)
/s/ James V. Janes, III
_____________________________
James V. Janes III
President
(Principal Officer)
/s/ Marian A. Bourque
_______________________________
Marian A. Bourque
Chief Accounting Officer
Date: April 13, 1998