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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 November 30, 1999
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:...15,918,319 shares of common
stock as of December 31, 1999
This document is comprised of 12 pages
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Delta-Omega Technologies, Inc.
Index to Quarterly Report
Part I
Financial Statements
Item 1. Financial Statements Page
----
Consolidated Balance Sheet as of November 30, 1999 ............... 2
Consolidated Statements of Operations, three months
ended November 30, 1999 and 1998 ........................ 3
Statements of Cash Flows, three months ended
November 30, 1999 and 1998 .............................. 4
Notes to consolidated financial statements ........................ 5
Item 2. Management's discussion and analysis of financial condition
and results of operations ................................ 10
Part II
Other Information
Item 1. Legal Proceedings ................................................. 14
Item 2. Changes in Securities ............................................. 14
Item 3. Defaults Upon Senior Securities ................................... 14
Item 4. Submission Of Matters To A Vote Of Security Holders ............... 14
Item 5. Other Information ................................................. 14
Item 6. Exhibits And Reports on Form 8-K .................................. 14
Signatures ................................................................ 15
Part I. Item 1. Financial Statements
--------------------
Delta-Omega Technologies, Inc.
Consolidated Balance Sheet
(Unaudited)
ASSETS
------
November 30,
1999
------------
Current Assets
Cash and equivalents $ 4,082
Accounts and notes receivable
Trade, net of allowance for losses 80,603
Accounts receivable-factored 173,945
Other 10,402
Inventories 214,049
Prepaid expenses 14,690
------------
Total current assets 497,771
Property and equipment, net of accumulated depreciation 226,751
Intangible assets, net of accumulated amortization 96,838
Other assets 11,655
------------
Total assets $ 833,015
============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable 346,716
Customer prepayments 32,046
Note payable-board of director loans 207,000
Current maturities of long-term debt and leases 34,294
Advance from factor 214,156
Other current and accrued liabilities 68.282
------------
Total current liabilities 902,494
Long-term debt and leases, net of current maturities 231,967
Shareholders' equity:
Convertible, 7 percent cumulative, non-participating preferred
stock, $.001 par value, shares authorized, 40,000,000; issued
and outstanding 1,335,000 series B, 2,396,667 series C 3,732
Common stock, $.001 par value, shares authorized,
100,000,000; issued and outstanding 14,996,589 15,918
Additional paid-in capital 11,804,875
Retained deficit (12,125,971)
------------
Total shareholders' equity (301,446)
------------
Total liabilities and shareholders' equity $ 833,015
============
See accompanying notes to consolidated financial statements.
2
Delta-Omega Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
November 30,
1999 1998
------------ ------------
Net sales and gross revenues
Net product sales $ 266,623 $ 299,554
Cost of sales and revenues 214,181 206,512
------------ ------------
Gross profit 52,442 93,042
Cost and expenses
Selling, general and administrative 186,627 187,078
Research and development 28,767 58,659
------------ ------------
Operating Loss (162,952) (152,695)
Other operating income, net 15,895 12,809
Interest expense (46,744) (1,931)
------------ ------------
Net loss available to common
shareholders $ (193,801) $ (141,817)
============ ============
Weighted average shares outstanding 15,918,319 14,996,589
============ ============
Net loss per common share $ (.01) $ (.01)
============ ============
See accompanying notes to consolidated financial statements.
3
Delta-Omega Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
November 30,
1999 1998
--------- ---------
Net cash used in operating activities $ (89,836) $(172,818)
Cash flows from investing activities:
Property acquisitions (34,653) 0
Proceeds from sale of property and equipment 700 12,000
Patent costs 0 (2,023)
--------- ---------
Net cash flows used in investing activities (33,953) (9,977)
Cash flows from financing activities:
Principal payments on long-term debt and
capital leases (5,388) (5,350)
Principal payments on related party notes (20,000) 0
Proceeds from factoring 84,357 0
Proceeds from borrowing 64,044 25,000
--------- ---------
Net cash flows provided by (used in)
financing activities 123,013 19,650
Net increase (decrease) in cash and equivalents (776) (143,191)
Cash and equivalents, beginning of period 4,858 150,674
--------- ---------
Cash and equivalents, end of period $ 4,082 $ 7,483
========= =========
See accompanying notes to consolidated financial statements.
4
Delta-Omega Technologies, Inc.
Notes to Consolidated Financial Statements
November 30, 1999
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, 1999 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, 2000.
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.
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 as of November 30, 1999, 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.
The Company is in the process of analyzing the best approach to raise
additional capital, including the option to sell 1 million common shares
at an undetermined price per share. These shares are remaining from 2
million shares authorized for sale to accredited and sophisticated
investors by the Company's board of directors in January 1998. For
immediate capital requirements, the Company expects to negotiate loans
from board of director members and major shareholders until sufficient
funds are generated from operations or the financial instruments
discussed above are implemented. As of November 30, 1999, the Company had
a cash balance of $4,082.
Note B: Related party transactions
--------------------------
During fiscal year 1999, the Company negotiated nine (9) promissory notes
totaling $270,000 with related parties, of which $225,000 were with
members of the board of directors, in order to maintain its current level
of operations. Each promissory note bears an interest rate of 8.25% per
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annum. These notes are short-term and were due during the fiscal year
1999. Extensions were negotiated on these notes which are included as
current liabilities in the balance sheet.
As part of the loans, the Company also issued the note holders warrants
to purchase one share of the Company's common stock for each dollar loan
at an average purchase price of $.25 per share.
During the current quarter of Fiscal 2000, the Company negotiated a
thirty (30) day short term promissory note totaling $15,000 with a member
of the board of directors. The note bears an interest rate of 9.25% per
annum and is included as a current liability in the balance sheet. This
promissory note was paid in full plus interest at the beginning of the
second quarter of Fiscal 2000.
Related party notes totaled $207,000 as of November 30, 1999.
The Company expects to repay these loans with funds generated from
continuing operations or proceeds from the sale of common stock
previously authorized by the board of directors; however these directors
may elect to convert the debt into equity.
Note C: Accounts and notes receivable
-----------------------------
In February 1999, the Company entered into a factoring agreement with
Texas Capital Funding, Inc. ("TCF"). The Company agreed to sell, assign,
transfer, convey and deliver submitted accounts receivable with recourse
to TCF and TCF agreed to purchase and accept delivery from the Company.
TCF agreed to transfer funds to the Company equal to 80% of the invoice
amount submitted. The remaining 20% is retained by TCF until the
submitted invoices are collected in full. Fees for the service rendered
by TCF are based upon the collection period of each submitted invoice.
Based upon the collection of submitted accounts receivable, fees incurred
averaged between 3% and 20% of the invoiced amount with an average of 5%
as of November 30, 1999. Fees incurred are classified as interest expense
and reflected in the consolidated statements of operations. Interest
expense related to the factoring of accounts receivable for the current
fiscal quarter totaled $27,359. Repayment of any advances is guaranteed
by two (2) members of the Company's board of directors.
Accounts and Notes Receivable at the end of November 30, 1999 consists of
the following:
Accounts Receivable, Trade $ 90,603
Accounts Receivable, Factored 173,945
Allowance for Doubtful Accounts (10,000)
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Total $ 254,548
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Note D: Disclosures about Reportable Segments
- ---------------------------------------------
Delta-Omega Technologies, Ltd. has four reportable segments: solvents and
cleaners, firefighting and spill response, oilfield and SafeScience. The
solvents and cleaners division produce products to serve the aviation
market and institutional and industrial markets. The firefighting and spill
response division produce U.L. listed fire foam products that are
non-toxic, non-hazardous and non-reportable. The oilfield division product
products that cater to the needs of the oil and gas industry. The
SafeScience line of products serves the consumer with products that are
defined exclusively for safety-for human health and the environment.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Delta-Omega Technologies
evaluates performance base on profit or loss from operations before income
taxes and interest expense not including nonrecurring gains and losses.
Delta-Omega Technologies' reportable segments are business units that offer
different products. Each reportable segment is allocated a percentage of
administrative costs not attributable to a particular segment according to
the percentage of gallons sold by the segment. The reportable segments are
managed separately because each business unit requires different technology
and marketing strategies.
Delta-Omega Technologies, Inc.
Disclosure of Reported Segment Profit or Loss, and Segmented Assets
Quarterly Period Ended November 30, 1999
Solvents & Firefighting & Oilfield SafeScience All
Cleaners Spill Response Other
Revenues from external
Customers $ 64,875 $ 90,799 $ 28,686 $ 82,263 $ --
Intersegment revenues -- -- -- -- --
Interest & Royalty Rev -- -- -- 15,029 --
Interest expense -- -- -- -- 46,745
Depreciation and
Amortization 8,579 12,154 3,932 11,083 9,788
Segment Profit (14,318) 4,144 2,120 (20,343) (165,404)
Segment Assets -- -- -- -- 833,015
Expenditures for segment
Assets -- -- -- -- 34,653
7
Delta-Omega Technologies, Inc.
Disclosure of Reported Segment Profit or Loss, and Segmented Assets
Quarterly Period Ended November 30, 1998
Solvents & Firefighting & Oilfield SafeScience All
Cleaners Spill Response Other
Revenues from external
Customers $128,558 $ 87,486 $ 83,510 $ -- --
Intersegment revenues -- -- -- -- --
Interest Revenue -- -- -- -- 809
Interest expense -- -- -- -- 1,931
Depreciation and
Amortization 7,459 5,031 4,857 -- 12,958
Segment Profit 328 (7,565) 238 -- (134,818)
Segment Assets -- -- -- -- 750,903
Expenditures for segment
Assets -- -- -- -- --
Delta-Omega Technologies, Inc.
Reconciliations of Reportable Segment Revenues
Profit or Loss, and Assets
November 30, November 30,
1999 1998
Revenues
- --------
Total revenues for reportable segments $ 266,623 $ 299,554
========= =========
Profit or Loss
- --------------
Total profit or loss for reportable segments ($ 28,397) ($ 7,004)
Other profit or loss (165,404) (134,813)
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Income before income taxes and extraordinary items ($193,801) ($141,817
========= =========
Assets
- ------
Other assets $ 833,015 $ 750,903
Total assets for reportable segments -- --
--------- ---------
Consolidated total $ 833,015 $ 750,903
========= =========
Other significant Items
- -----------------------
Research and Development Expenses $ 28,767 $ 58,659
Depreciation Expense-R&D Equipment 6,585 9,213
*Research and Development expenses not directly accounted for in the totals of a
specific reporting segment is included in the classification "All Other" for the
quarterly period ended November 30, 1999 and 1998.
8
Delta-Omega Technologies, Inc. - Disclosures of Geographic Information and Major
Customers
- --------------------------------------------------------------------------------
Products sales for each reportable segment are concentrated in the continental
United States. Revenues from one customer of the Company's SafeScience
reportable segment represents thirty-one percent (31%) and revenues from one
customer of the solvents and cleaners reportable segment represents
approximately twenty-two (22%) percent of the Company's total consolidated
revenues for the quarterly period ended November 30, 1999 and 1998,
respectively.
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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 first quarter of Fiscal 2000 decreased $32,931
or 11% when compared to the same quarter in the prior year. The decrease
in net sales was due primarily to the decline in the sales from the three
(3) year U.S. Air Force contract that expired in June 1999. The U.S. Air
Force Mil. Spec. MIL-C-87937C, Type II to which the Company is qualified
is being phased out and replaced with MIL-PRF-87937C, Type IV, a product
that qualifies to a more rigid cleaning efficiency test. The Company has
developed a product that qualifies to MIL-PRF-87937C, Type IV and
currently has a quotation outstanding to furnish the government with a
Type IV aircraft cleaning compound for an additional three (3) years.
During the current quarter, sales from the Company's solvent
replacement division decreased $62,280 or 55% when compared to the same
quarter of the prior fiscal year. This decrease was due to the expiration
of the U.S. Air Force contract in fiscal year 1999. Sales generated from
the Company's consumer line of products to SafeScience offset 44% of the
decrease in sales from the solvent replacement division.
10
Cost of sales for the three months ended November 30, 1999
increased $7,669 or 4% when compared to the same period in Fiscal 1999.
As percentage of sales, cost of sales increased from 69% to 80%.
The increase in cost of sales as a percentage of sales was
attributable to a high percentage (31%) of the Company's net sales for
the current three months ended being generated from the SafeScience
consumer line of products. The Company's SafeScience consumer line of
products have less active ingredients per unit of measure when compared
to industrial and institutional products; therefore, lower gross margins
exist when a large percentage of net sales are generated by the
SafeScience consumer product line.
Operating expenses for the first quarter of Fiscal 2000 decreased
$30,343 or 12% compared to the same quarter of Fiscal 1999. This decrease
was due primarily to the Company's reduction in research and development
costs associated with the Base Fluid Destruction process in South
America.
Net other operating income was $15,895 for the three months ended,
an increase of $3,086 when compared with the same period in the prior
year. Net other operating income for the current quarter includes accrued
royalties totaling $15,029.
Interest expense was $46,744 for the current quarter as compared
to $1,931 for the same period in the prior year. This increase is due to
the fees incurred by the factoring of accounts receivable and interest
accrued on promissory notes negotiated with members of the board of
directors, major shareholders and SafeScience, Inc.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company considers cash and cash equivalents as its principal measure
of liquidity. These items total $4,082 at November 30, 1999. 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 as of November
30, 1999, 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.
The Company is in the process of analyzing the best approach to raise
additional capital, including the option to sell 1 million common shares
at an undetermined price per share. These shares are remaining from 2
million shares authorized for sale to accredited and sophisticated
investors by the Company's board of directors in January 1998.
11
For immediate capital requirements, the Company expects to
negotiate loans from board of director members and major shareholders
until sufficient funds are generated from operations or the financial
instruments discussed above are implemented. The Company negotiated nine
(9) promissory notes totaling $270,000 with related parties during fiscal
year 1999 and one (1) promissory note with a related party totaling
$15,000, of which $240,000 were with members of the board of directors,
in order to maintain its current level of operations. The promissory
notes are short term and bear interest rates ranging from 8.25% - 9.25%
per annum. Also, in June 1999, the Company negotiated a $150,000 loan
agreement with SafeScience, Inc. (SFAS) in order to comply with demands
specified in the supply and distribution agreement between SAFS and the
Company. The note bears interest at a rate of 8.25% per annum on the
outstanding principal amount of the note, and the interest shall be
payable quarterly.
During the last two years, the Company invested funds in a unique
technology for recovering barite and oil from spent drilling mud. The
Company, working on location in Colombia with M-I Overseas Limited,
successfully completed the first phase of its oil based mud processing
application. "Base Fluid Destruction" (BFD) is a version of MRP, a
proprietary process for recovering barite and oil from spent drilling
muds. BFD was demonstrated for a major oil exploration and production
company. Based upon the success of this application, the Company was
requested to expand its process to include the treatment of the
water/solids phase that remains after initial processing. No estimate of
revenues is possible at this stage of development because the results of
this technology have to be commercially explored.
The Company's current acquisition of six (6) additional UL
listings for its fire foam products gives the Company an opportunity to
gain a significant market share in the municipal fire sector and airport
fire fighting markets. The Company also developed a Class "A" foam used
for extinguishing wildland and structural fires. The Company plans to
obtain approval for use in the forestry service market.
The Company has been contracted to furnish products to a
corporation, SafeScience, Inc., that has entered the I&I and household
goods markets. Since the installation of a high-speed bottling unit
provided by SafeScience in April 1999, revenues totaling approximately
$300,000 have been generated by sales to SafeScience. The Company
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anticipates a steady increase in the amount of revenues generated by this
contract as SafeScience, Inc. enters the industrial market in a focused
manner, while continuing to develop and expand existing consumer product
distribution accounts.
On September 1, 1999, the Company and SafeScience entered into an
exclusive License Agreement concerning certain proprietary formulations
developed by the Company and produced exclusively for SafeScience. Terms
of the License Agreement provide for SafeScience to provide confidential
access to these formulations to third party manufacturers for the purpose
of manufacturing large volumes of finished goods for resale. This
arrangement allows SafeScience to outsource much greater product blending
capacities than the Company can provide with its existing facilities. A
provision of the License Agreement grants a royalty to the Company based
upon net sales of SafeScience products. In the current quarter, royalties
totaling approximately $15,029 have been accrued and this total is
included as other income in the consolidated statement of operations.
The Company recently introduced a line of products to serve the
needs of the oil, gas exploration and production industries. This line of
products includes degreasers, paraffin cutters, downhole tubing and
casing cleaners and marine transportation storage vessel cleaning
compounds. The multi-functional properties of these products allow the
customer greater flexibility by reducing cleaning time, minimizing
storage requirements, enhancing worker safety and lessening environmental
liabilities. The Company furnishes specialized cleaning and treatment
chemicals to Environmental Concepts, Inc. (E.C.I.), a company that
provides cleaning equipment, products and services to the oil and gas
industry. Initial sales of the Company's products totaling approximately
$30,000 have been made to E.C.I., with increasing volumes anticipated
when E.C.I. begins full service cleaning, which is scheduled to begin in
the next quarter.
Management believes that the sources of funds and anticipated
increases in sales volume discussed above will enable the Company to
sustain its current operations and meet its short term obligations in
fiscal 2000. As sales volumes of the Company's fire foam product line and
industrial chemicals increase, the Company expects cash flow from
operations in fiscal 2000 to improve, although no assurances can be made.
During 1998, the Company developed a plan to upgrade its primary
information systems to be Year 2000 compliant. In December 1999, the
Company implemented the necessary upgrades to its information systems for
Year 2000 compliance. The costs incurred by the Company for the necessary
upgrades were not material to its financial condition or business
operations.
The Company has no unused credit facilities at this time.
13
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
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
14
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, 1999 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: January 14, 2000
15