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 May 31, 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:...14,389,978 shares of common
stock as of June 30, 1998
This document is comprised of 12 pages
Delta-Omega Technologies, Inc.
Index to Quarterly Report
Part I
Financial Statements
Item 1. Financial Statements Page
Consolidated Balance Sheet as of
May 31, 1998. . . . . . . . . . . . . . . . . . 2
Consolidated Statements of
Operations, three and nine months
ended May 31, 1998 and 1997. . . . . . . . . . 3
Statements of Cash Flows, nine
months ended May 31, 1998 and 1997. . . . . . . 4
Notes to consolidated financial statements . . . . 5
Item 2. Management's discussion and analysis of
financial condition and results of
operations. . . . . . . . . . . . . . . . . . . 6
Part II
Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 10
Item 2. Changes in Securities . . . . . . . . . . . . . . . 10
Item 3. Defaults Upon Senior Securities. . .. . . . . . . . 10
Item 4. Submission Of Matters To A Vote Of
Security Holders . . . . . . . . . . . . . . . . 10
Item 5. Other Information. . . . . . . . . . . . . . . . . 11
Item 6. Exhibits And Reports on Form 8-K . . . . . . .. . . 11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 12
Part I. Item 1. Financial Statements
Delta-Omega Technologies, Inc.
Consolidated Balance Sheet
Unaudited)
ASSETS
May 31,
1998
______________
Current Assets
Cash 409,017
Accounts and notes receivable
Trade, net of allowance for losses 145,502
Other 8,500
Inventories 246,159
Prepaid expenses 25,926
_______________
Total current assets 835,104
Property and equipment, net of
accumulated depreciation 425,051
Intangible assets, net of
accumulated amortization 130,102
Other assets 10,643
_______________
Total assets $1,400,900
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable 187,510
Customer prepayments 119,735
Current maturities of long-term
debt and leases 21,802
Other current and accrued liabilities 52,968
_______________
Total current liabilities 382,015
Long-term debt and leases, net of
current maturities 45,241
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 14,339,978 14,340
Additional paid-in capital 11,346,785
Retained deficit (10,391,493)
_________________
Total shareholders' equity 973,644
_________________
Total liabilities and shareholders'
equity $1,400,900
=================
See accompanying notes to consolidated financial statements.
Delta-Omega Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
May 31, May 31,
1998 1997 1998 1997
Net sales and
gross revenues
Net product
sales $325,100 $324,468 $909,936 $923,553
Cost of sales
and revenues 218,847 237,452 626,690 681,354
__________ __________ __________ _________
Gross profit 106,253 87,016 283,246 242,199
Cost and expenses
Selling, general
and
administrative 271,754 361,761 836,547 909,036
Research and
development 160,348 75,730 382,468 173,041
___________ ___________ _________ __________
Operating Loss (325,849) (350,475) (935,769) (839,878)
Other income, net 2,276 11,083 6,479 27,764
Interest expense (1,049) (2,119) (5,040) (5,198)
Net loss
available to
common
shareholders $(324,622) $(341,511) $(934,330) $(817,312)
============== =========== =========== ==========
Weighted average
shares
outstanding 14,000,062 12,763,187 13,508,509 12,750,127
============= ============ =========== ===========
Net loss per
common share $ (.02) $ (.02) $ (.07) $ (.06)
============ ============ =========== =============
See accompanying notes to consolidated financial statements.
Delta-Omega Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
May 31,
1998 1997
________ ________
Net cash used in operating activities $(646,601) $(745,697)
Cash flows from investing activities:
Property acquisitions (44,802) (59,904)
Patent costs 2,999 (15,427)
Proceeds from sale of
property and equipment 2,500 800
___________ ___________
Net cash flows used in
investing activities (39,303) (74,531)
Cash flows from financing activities:
Proceeds from borrowing 21,650 25,836
Proceeds from issuance
of common stock 739,811 0
Principal payments on
bank notes payable (7,037) (6,423)
Capital lease financing
and other notes (6,077) (4,083)
______________ _____________
Net cash flows provided by (used in)
financing activities 748,347 15,330
Net increase (decrease) in cash
and equivalents 62,443 (804,898)
Cash and equivalents,
beginning of period 346,574 1,536,152
_____________ _____________
Cash and equivalents,
end of period $409,017 $731,254
============== ==============
See accompanying notes to consolidated financial statements.
Delta-Omega Technologies, Inc.
Notes to Consolidated Financial Statements
May 31, 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 selling up
to 2 million shares of common stock at the best negotiated price. In March
1998, the Company completed a special private placement solely to accredited
and sophisticated investors at an offering price of $.75 per share. The
Company sold 986,413 shares of common stock and raised approximately $740,000.
The Company issued 33,333 shares of common stock at the special private
placement offering price of $.75 per share to Global Strategy & Associates,
James A. Wylie, Jr. in lieu of cash for consulting services rendered during
the months of January, February and March, 1998.
Note C: Intangible Assets
During the third quarter of Fiscal 1998, the Company abandoned its
downhole chemicals patent. Associated costs of $9,000 were written off and
are reflected in the Selling, general and administrative expense section of
the Consolidated Statements of Operations.
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 third quarter of Fiscal 1998 were approximately the
same as compared to the same quarter in Fiscal 1997. Although sales have
remained relatively constant, cost of sales as a percentage of sales have
decreased due to the increased production volume from the Company's oilfield
products business unit. Those sales generated from the Company's oilfield
products business unit somewhat offset the decline in aircraft cleaning
compound sales to the U.S. Air Force.
Net sales for the nine month period in Fiscal 1998 were less than the
comparable period of Fiscal 1997 by $13,600 or 1.5%. During this nine month
period, aircraft cleaning compound sales to the U.S. Air Force decreased
because 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. In addition, sales to the Company's largest contract blending
customer decreased during the transition period when the customer was being
purchased by a larger company. Those decreases were offset by a 40% increase
in fire foam product sales subsequent to the attainment of three (3)
additional Underwriters Laboratories listings and increased oilfield product
sales during the third quarter.
Cost of sales for the three and nine months ended May 31, 1998 decreased
$18,605 and $54,664 respectively, as compared to the same period of Fiscal
1997. As a percentage of sales, cost of sales decreased for the three and
nine months ended May 31, 1998.
The decrease in cost of sales was primarily attributable to the increased
production volume of the Company's oilfield products. Management believes
that as gallons produced continue to increase, cost of sales as a percentage
of sales will decrease as the Company's plant achieves maximum volume
capacity.
Selling, general and administrative expenses for the three and nine
months ended May 31, 1998 totaled $271,754 and $836,547 respectively as
compared to $361,761 and $909,036 for the same periods in 1997. The decrease
in selling, general and administrative during the third quarter of Fiscal 1998
was due to a shift in the Company's focus and resources to Research and
Development.
Research and Development expenses for the third quarter of Fiscal 1998
increased $84,618 as compared to the same period in Fiscal 1997. For the
nine month period ending May 31, 1998, research and development expenses
totaled $382,468 as compared to $173,041 for the same period in Fiscal 1997.
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
based in Latin America.
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 incurred relative to the
demonstration of the Company's BFD process based in Latin America and the lack
of sufficient sales resulted in a net loss available to common shareholders of
$324,622 for the current period in Fiscal 1998 as compared to the net loss of
$341,511 for the same period in fiscal 1997.
Other income consisting primarily of interest income for the three and
nine months ended May 31, 1998 was $2,276 and $6,479 respectively, a decrease
of $8,807 and $21,285 respectively when compared with the same periods in the
prior year. This resulted from a decrease in investment cash.
Interest expense was $1,049 and $5,040 respectively for the three and
nine months ended May 31, 1998 compared to $2,119 and $5,198 for the same
periods in the prior fiscal year. The decrease in interest expense was due to
the maturities of certain notes payable becoming due.
LIQUIDITY AND CAPITAL RESOURCES
The Company considers cash and cash equivalents as its principal measure
of liquidity. These items total $409,017 at May 31, 1998. Net cash used by
operating activities in the current period was $280,394. 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 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 had negotiated a $30,000
loan from a member of the board of directors. Proceeds from the March 1998
special private offering were used to repay the loan.
During 1998, the Company developed a plan to upgrade its primary
information systems to be Year 2000 compliant. The Company does not expect
the cost of the upgrade to be material to its financial condition or business
operations. Through May 31, 1998, the Company has not incurred significant
costs associated with the Year 2000. The Company anticipates to have the
necessary upgrades by February 1, 1999.
The Company is in the process of evaluating compliance with the Year 2000
by its primary suppliers and customers; however the Company does not believe
its business or operations would be adversely impacted if its suppliers or
customers were not Year 2000 compliant.
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 a version
of the process. No estimate of revenues is possible at this stage of
development because the results of this technology have to be commercially
explored.
The Company entered into an 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 continues to expand its industrial and institutional
cleaning market. Specifically, the Company has entered the fleet maintenance
market and is now supplying products to Ryder-ATE, Houston Metro, Nalco Fleet
Lines and TexGas. Moreover, Trac Auto and Enterprise Tank Lines are in the
evaluation process with several of the Company's products. Also the Company
entered the concrete cleaning and stone restoration markets. These products
have been accepted by FMB Property Management Company, the Texas Medical
Center and several cemetery organizations. These materials are also being
evaluated by other property management companies as well as several
international organizations and cemetery conglomerates. The Company's
materials offer safe, effective alternatives to the solvent, caustic and acid
based materials currently being utilized in the marketplace.
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
The Company's annual shareholders' meeting for shareholders of
record as of close of business on March 20, 1998 was held on April
21, 1998 at 119 Ida Road, Broussard, LA. The annual meeting
involved the election of directors, approval of reappointment of
auditors and to transact such other business as may properly come
before the meeting. The following figures were reported as the final
totals for the proposals voted upon.
Proposal #1: Election of Directors
For Withheld
_________ ____________
L.G. Schafran 12,318,185 200
Richard Brown 12,318,185 200
Donald Carlin 12,310,642 7,543
James V. Janes, III 12,318,185 200
David Peipers 12,318,185 200
Result: Schafran, Brown, Carlin, Janes and Peipers elected.
Proposal #2: To ratify the appointment of the auditing firm of
Arthur Andersen & Company.
For: 12,310,965
Against: 4,620
Abstain: 3,800
Not Voted: -0-
Result: Proposal passed.
Total voted shares represented by proxy: 12,319,385
Percentage of the outstanding voting shares: 71.07%
Outstanding voting shares: 17,332,598
No other business was brought before the meeting for consideration.
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 and nine months
ended May 31, 1998 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: July 13, 1998
__________________