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, 1997 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:...12,760,320 shares of common stock as of June 30, 1997 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 May 31, 1997. . . . . . 2 Consolidated Statements of Operations, three and nine months ended May 31, 1997 and 1996. . . . . . . . . 3 Statements of Cash Flows, nine months ended May 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . . 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. . . . . . . . . . . . . . . . . . . 8 Item 2. Changes in Securities . . . . . . . . . . . . . . . . . 8 Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . 8 Item 4. Submission Of Matters To A Vote Of Security Holders . . 8 Item 5. Other Information. . . . . . . . . . . . . . . . . . . 8 Item 6. Exhibits And Reports on Form 8-K . . . . . . . . . . . 8 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Part I. Item 1. Financial Statements Delta-Omega Technologies, Inc. Consolidated Balance Sheet (Unaudited) ASSETS May 31, 1997 Current Assets Cash and equivalents $ 731,254 Accounts and notes receivable Trade, net of allowance for losses 127,105 Trade, related parties 104 Other 46,358 Inventories 214,306 Prepaid expenses 20,284 ___________ Total current assets 1,139,411 Property and equipment, net of accumulated depreciation 441,212 Intangible assets, net of accumulated amortization 125,665 Other assets 11,007 ___________ Total assets $ 1,717,295 ___________ ___________ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable 210,748 Current maturities of long-term debt and leases 31,862 Other current and accrued liabilities 18,141 ___________ Total current liabilities 260,751 Long-term debt and leases, net of current maturities 44,937 Shareholders' equity: Convertible, 7 percent cumulative, non-participating preferred stock, $.001 par value, shares authorized, 40,000,000; issued and outstanding 1,595,000 series B, 2,471,667 series C 4,062 Common stock, $.001 par value, shares authorized, 100,000,000; issued and outstanding 12,760,320 12,765 Additional paid-in capital 10,324,060 Retained deficit (8,929,280) ___________ Total shareholders' equity 1,411,607 ___________ Total liabilities and shareholders' equity $ 1,717,295 ___________ ___________ 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, 1997 1996 1997 1996 Net sales and gross revenues Net product sales $ 324,468 $ 249,642 $ 923,553 $ 546,406 Cost of sales and revenues 237,452 175,368 681,354 364,921 __________ __________ __________ __________ Gross profit 87,016 74,274 242,199 181,485 Cost and expenses Selling, general and administrative 361,761 241,449 909,036 946,229 Research and development 75,730 5,893 173,041 51,118 __________ __________ __________ __________ Operating Loss (350,475) (173,068) (839,878) (815,862) Other income, net 11,083 227 27,764 8,776 Interest expense (2,119) (1,984) (5,198) (4,616) __________ __________ __________ __________ Net loss available to common shareholders $ (341,511) $ (174,825) $ (817,312) $ (811,702) __________ __________ __________ __________ __________ __________ __________ __________ Weighted average shares outstanding 12,763,187 12,546,807 12,750,127 12,468,585 __________ __________ __________ __________ __________ __________ __________ __________ Net loss per common share $ (.02) $ (.01) $ (.06) $ (.07) __________ __________ __________ __________ __________ __________ __________ __________ See accompanying notes to consolidated financial statements. Delta-Omega Technologies, Inc. Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended May 31, 1997 1996 Net cash used in operating activities $ (745,697) $ (726,704) Cash flows from investing activities: Property acquisitions (59,904) 5,674 Patent costs (15,427) (4,844) Proceeds from sale of property and equipment 800 0 Deposits 0 480 _________ __________ Net cash flows used in investing activities (74,531) 1,310 Cash flows from financing activities: Proceeds from borrowing 25,836 42,500 Proceeds from issuance of stock 0 122,500 Principal payments on notes payable (6,423) 6,466 Capital lease financing (4,083) (20,078) _________ __________ Net cash flows provided by (used in) financing activities 15,330 151,388 Net increase (decrease) in cash and equivalents (804,899) (574,006) Cash and equivalents, beginning of period 1,536,152 588,418 _________ __________ Cash and equivalents, end of period $ 731,254 $ 14,412 _________ __________ _________ __________ See accompanying notes to consolidated financial statements. Delta-Omega Technologies, Inc. Notes to Consolidated Financial Statements May 31, 1997 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, 1996 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, 1997. 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 The Company entered into four agreements to issue stock options in lieu of cash for technical and marketing services rendered for the period May 1, 1996 through January 31, 1997 and in accordance with the terms of certain employment agreements. As per these agreements, on March 10, 1997 the Company issued 32,330 stock options with exercise prices ranging from $.75 to $1.00 per share. The Company entered into another agreement granting stock options in lieu of cash for consulting services rendered in accordance with the terms of a settlement agreement. As per this agreement, on April 10, 1997, the Company issued 66,667 options with an exercise price of $.65 per share. In connection with this grant, one director agreed to cancel a total of 33,333 options with an exercise price of 2.00 per share previously granted to him. There was no compensation expense recorded upon issuance of these options because the exercise price exceeded the market price of the Company's common shares on the measurement date. Therefore, since there was no compensation expense associated with these options, the Company properly provided no accounting recognition. The Company will continue to use stock option arrangements when possible to conserve its cash. 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 For the three and nine months ended May 31, 1997, revenues totaled $324,468 and $923,553 respectively as compared to $249,642 and $546,406 for the same periods in 1996. The increase in revenue was due primarily to the sales generated from the U.S. Air Force contract to furnish a military aircraft cleaning compound and a contract to supply chemical cleaning products to a large specialized waste handling and container cleaning company that serves the oil industry in the Gulf Coast region. Through May 31, 1997, the U.S. Air Force contract generated sales of approximately $350,000. The supply contract for the waste handling and container cleaning company generates average monthly sales of approximately $50,000. Gross margins as a percent of revenue for the nine months ended decreased due to a higher percentage of the Company's total sales being derived from markets that are more competitive and yield lower margins. If sales volumes continue to improve, management expects that average unit cost will decrease, thereby improving gross margins in future. For the three and nine months ended May 31, 1997, selling, general and administrative expenses totaled $361,761 and $909,036 respectively as compared to $241,449 and $946,229 for the same periods in 1996. Selling, general and administrative expenses for the current period increased due primarily to consulting fees and recruitment services incurred, the addition of a Vice President of Sales and Marketing and increased travel expenses. Research and Development expenses for the current period totaled $75,730 and $173,041 respectively as compared to $5,893 and $51,118 for the same periods in fiscal 1996. The increase in Research and Development expenses was due primarily to the addition of laboratory personnel and expenses incurred during the demonstration of a new technology for recovering barite and oil from spent drilling muds. Increased operating expenses resulted in net losses available to common shareholders of $341,511 and $817,312 respectively as compared to the losses of $174,825 and $811,702 for the same periods in 1996. Other income consisting primarily of interest income was $27,764 for the nine months, an increase of $18,988 when compared with the same period in the prior year. This resulted from an increase in investment cash. Interest expense was $5,198 for the nine months as compared to $4,616 for the same period in the prior year. This increase is due to debt incurred to finance equipment purchases. LIQUIDITY AND CAPITAL RESOURCES Operating cash at May 31, 1997 was $731,254. Net cash used by operating activities through the third quarter of fiscal year 1997 was $745,697 as compared to $726,704 through the third quarter of fiscal year 1996. This increase is due primarily to increased operating expenses. The Company enhanced its liquidity in the third and fourth quarter of fiscal year 1996 by completing a private offering of Series C Preferred Stock solely to accredited investors and raised approximately $1.8 million. Commencing in June 1996 as amended in August 1996, the Company offered Units of 2,471,667 Shares of Series C Preferred Stock and Class Z Warrants at an offering price of $.75 per Unit, with a minimum investment of 25,000 Units, or $18,750. The Company paid ten percent (10%) concessions to certain broker/dealers who consummated sales of the Units. The proceeds from this offering were used to fund the recurring losses and negative cash flows until the Company is able to generate sufficient sales to become profitable. A portion of the proceeds were used to expand the Company's technical capabilities, with the addition of advance degreed R & D personnel, and improve the Company's sales effort, with the addition of a Vice President of Sales & Marketing. The Company continues to supply the United States Air Force with DOT 111/113TM to be utilized for cleaning military aircraft and aerospace ground equipment. The one-year contract extension has the potential to generate approximately $600,000 annually. The Company was notified in April, 1997 that the contract option was exercised for the twelve month period beginning June 1, 1997. As previously reported, the Company has successfully demonstrated a new technology for recovering barite and oil from spent drilling muds. A modified version of the "MRP" process has now been developed for commercial applications. The Company has teamed with a major U.S. based drilling mud company to perform a full scale application in Latin America. The field application will be completed by the end of August, 1997. Management believes, although no assurances can be made, that sales will continue to increase and cash flows from operations will improve in fiscal year 1997. Mr. David "Andy" Gordon assumed the position of Vice President of Sales and Marketing on May 5, 1997. His background in marketing and sales of specialty chemicals for various market places including oilfield, institutional and industrial has and should continue to enhance the Company's market focus. Notwithstanding the anticipated increased cash flow from operations, there can be no assurance that additional cash won't be needed if net losses aren't reduced or eliminated in the near term. Historically, the Company has relied on proceeds of private placements and loans from directors and shareholders to fund operations. The Company has developed contingency plans to issue another private placement if its cash reserves fall below $200,000 and for short term loans from directors as an interim solution pending receipt of private placement proceeds. Management believes that its current cash position, its access to private placement proceeds and director loans will allow it to meet cash needs for at least the next 12 months. 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 7, 1997 was held on April 16, 1997 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 10,358,537 7,500 Richard Brown 10,359,537 6,500 Donald Carlin 10,334,537 31,500 James V. Janes, III 10,357,137 8,900 David Peipers 10,359,537 6,500 Result: Schafran, Brown, Carlin, Janes and Peipers elected. Proposal #2: To ratify the appointment of the auditing firm of Arthur Andersen & Company. For: 10,363,477 Against: 1,200 Abstain: 1,360 Not Voted: -0- Result: Proposal passed. Total voted shares represented by proxy: 10,366,037 Percentage of the outstanding voting shares: 61.60% Outstanding voting shares: 16,826,987 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 months and nine months ended May 31, 1997 and 1996 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 10, 1997