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, 2001
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)
(337) 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:...19,225,773 shares of common
stock as of March 31, 2001
This document is comprised of 17 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, 2001 ................ 2
Consolidated Statements of Operations, three months and six months
ended February 28, 2001 and February 28, 2000 ............ 3
Statements of Cash Flows, SIX months ended
February 28, 2001 and February 28, 2000 .................. 4
Notes to consolidated financial statements ......................... 5
Item 2. Management's discussion and analysis of financial condition
and results of operations ................................. 12
Part II
Other Information
Item 2. Changes in Securities .............................................. 15
Item 6. Exhibits And Reports on Form 8-K ................................... 17
Signatures ................................................................. 17
Part I. Item 1. Financial Statements
Delta-Omega Technologies, Inc.
Consolidated Balance Sheet
(Unaudited)
ASSETS
February 28,
2001
------------
Current Assets
Accounts and notes receivable
Trade, net of allowance for losses 163,987
Accounts receivable-factored 20,728
Other 942
Inventories 110,907
Prepaid expenses 5,443
------------
Total current assets 302,007
Property and equipment, net of accumulated depreciation 83,883
Intangible assets, net of accumulated amortization 86,950
Marketable Equity Securities, carried at lower cost or market 174,992
Other assets 11,846
------------
Total assets $ 659,678
============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Bank overdraft 11,621
Accounts payable 299,928
Customer prepayments 48,046
Note payable-board of director loans 451,000
Current maturities of long-term debt and leases 38,065
Advance from factor 50,000
Other current and accrued liabilities 161,381
------------
Total current liabilities 1,060,041
Long-term debt and leases, net of current maturities 32,999
Shareholders' equity:
Convertible, 7 percent cumulative, non-participating preferred
stock, $.001 par value, shares authorized, 40,000,000; issued
and outstanding 1,295,000 series B, 2,396,667 series C 3,692
Common stock, $.001 par value, shares authorized,
100,000,000; issued and outstanding 19,225,773 19,226
Unrealized Loss on Valuation of Marketable Equity Securities (25,008)
Additional paid-in capital 12,346,451
Retained deficit (12,777,723)
------------
Total shareholders' equity (433,362)
------------
Total liabilities and shareholders' equity $ 659,678
============
See accompanying notes to consolidated financial statements.
2
Delta-Omega Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
February 28 February 28
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales and gross revenues
Net product sales $ 157,973 $ 334,599 $ 353,822 $ 601,222
Cost of sales and revenues 128,356 229,221 263,140 431,283
------------ ------------ ------------ ------------
Gross profit 29,617 105,378 90,682 169,939
Cost and expenses
Selling, general and administrative 188,200 223,931 302,863 424,385
Research and development 19,053 29,276 39,146 57,035
------------ ------------ ------------ ------------
Operating Loss (177,636) (147,829) (251,327) (311,481)
Other operating income, net 2,441 16,366 4,684 32,961
Interest expense (14,504) (42,787) (46,319) (89,531)
Extraordinary Income 400,325 0 400,325 0
------------ ------------ ------------ ------------
Net profit/(loss) available to common
shareholders $ 210,428 $ (174,250) $ 107,363 $ (368,051)
============ ============ ============ ============
Weighted average shares outstanding 18,747,210 15,929,711 19,032,919 15,924,015
============ ============ ============ ============
Net loss per common share $ .02 $ (.01) $ .01 $ (.02)
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
3
Delta-Omega Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
February 28,
2001 2000
--------- ---------
Net cash used in operating activities $ (22,692) $(168,993)
Cash flows from investing activities:
Property acquisitions 0 (36,265)
Proceeds from sale of property and equipment 0 700
--------- ---------
Net cash flows used in investing activities 0 (35,565)
Cash flows from financing activities:
Bank overdraft 9,740 0
Principal payments on long-term debt and
capital leases (19,277) (15,142)
Re payments on borrowings (5,021) (20,000)
Proceeds from factoring (135,825) (19,220)
Proceeds from borrowing 173,075 252,656
--------- ---------
Net cash flows provided by (used in)
financing activities 22,692 198,294
Net increase (decrease) in cash and equivalents 0 (6,264)
Cash and equivalents, beginning of period 0 4,858
--------- ---------
Cash and equivalents, end of period $ 0 $ (1,406)
========= =========
See accompanying notes to consolidated financial statements.
4
Delta-Omega Technologies, Inc.
Notes to Consolidated Financial Statements
February 28, 2001
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, 2000 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, 2001.
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 February 28, 2001, 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 obtain additional capital, the Company commenced a private offering in
March 2000 to raise approximately $550,000 solely to accredited and
sophisticated investors. The Company closed this offering in December 2000.
Funds related to this offering totaling $248,900 were received by the
Company.
For immediate cash requirements, the Company negotiated a 120 day
convertible loan note totaling $100,000 with one of its emergency response
customers. The loan note is convertible at the option of the holder into
common stock of the Company, at an initial conversion rate of one share of
common stock for each sixteen cents loaned or the closing bid price of the
Company's stock on the date the Company receives notice of conversion, but
in no case less than six cents (.06) per share. The outstanding balance of
the loan note is due on or before May 15, 2001 plus interest at .03333% per
5
day on the weighted average outstanding balance. Funds totaling $100,000
had been advanced to the Company under this note agreement. The Company
also negotiated two additional short term promissory notes dated September
13, 2000 and February 6, 2001 totaling $15,000 and $35,000, respectively
from a member of the board of directors. The short term promissory notes
bear interest rates of 9.25% per annum and are due in full plus accrued
interest six months from the date of inception.
The Company implemented $250,000 Convertible Note Offering solely to
accredited and sophisticated investors in December 2000. The Note Holder
has the option to convert the note offering for one share of the Company's
common stock for each $.05 principal and accrued interest, 12% per annum,
prior to the repayment in full by the Company of the principal and interest
of the Note. The Convertible Note outstanding principal and interest
accrued is due on or before June 15, 2001. The Note Offering was closed in
April 2001 and funds totaling $250,000 were received by the Company under
this note agreement.
The Company also has the option to sell 1 million common shares at an
undetermined price per share to obtain additional capital. 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.
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 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.
In fiscal year 2000, the Company negotiated six additional short term
promissory notes totaling $224,000 with related parties. One note totaling
$15,000 bears an interest rate of 9.25% per annum and was paid in full plus
interest in the second quarter of fiscal year 2000. Three of the six short
term promissory notes totaling $50,000 each bear interest rates of 8.25%
per annum and were due on or before April 30, 2000. Any amount of principal
& interest not paid when these three notes were due will accrue interest at
the rate of 12 percent per annum until paid. Attached to each of the these
three notes is a warrant agreement granting the holder warrants to purchase
50,000 shares of common stock at an exercise price of $.15 per share. The
two remaining 90 day promissory notes totaling $59,000 bear interest rates
of 8.25% per annum.
6
Two additional short term promissory notes were negotiated by the Company
from a member of the board of directors during the first and second
quarters of fiscal year 2001. The short term promissory notes dated
September 13, 2000 and February 6, 2001 total $15,000 and $35,000,
respectively. The notes bear interest rates of 9.25% per annum and are due
in full plus accrued interest six months from date of inception.
Related party notes payable totaled $451,000 as of February 28, 2001 and
are reflected in the current liability section of the accompanying
consolidated balance sheet.
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 February 28,
2001. 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
$1,024. 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 February 28, 2001 consists of
the following:
Accounts Receivable, Trade $ 173,987
Accounts Receivable, Factored 20,728
Allowance for Doubtful Accounts (10,000)
---------
Total $ 184,715
=========
7
Note D: Shareholders' Equity
- ----------------------------
During fiscal year 2000, the Company's board of directors authorized
selling 3,437,500 shares of the Company's common stock at a price of $.16
per share through a Private Placement Memorandum offered solely to
accredited and sophisticated investors. In March and April 2000, the
Company sold 1,555,625 of the authorized 3,437,500 shares of common stock
offered through the Private Placement Memorandum. The Company closed this
offering in December 2000.
Also during fiscal year 2000, the board of directors authorized the
issuance of 20,558 shares of common stock at a price of $.46 per share and
13,618 shares of common stock at a price of $.24 per share. The common
stock was issued to Wellesley Capital Group, Inc. as remuneration for
expenses incurred during fund raising efforts for the period January 1998
through September 1999.
In the first quarter of fiscal 2001, the Company's board of directors
authorized extending the expiration date for an additional three (3) years
for 831,500 stock options granted with exercise prices ranging from $.34 -
$2.00 per share and a warrant to purchase 600,000 shares of common stock at
an exercise price of $2.00 per share as per agreements. The Company's board
of directors also granted options to purchase 100,000 shares of common
stock at an exercise price of $1.00 per share to J.P. Soma, Ph.D. as part
of the Company's 1991 Plan, Employee Incentive Stock Option Plan, for
services rendered.
The Company also negotiated a 120 day convertible loan note with one of its
emergency response customers totaling $100,000. The outstanding principal
plus accrued interest is convertible, on or before February 15, 2001, at
the option of the holder into common stock of the Company, at an initial
conversion rate of one share of common stock for each sixteen cents loaned
or the closing bid price of the Company's common stock on the date that the
Company receives notice of conversion, but in no case less than six cents
(.06) per share. Funds totaling $100,000 had been advanced to the Company
under this note agreement.
During the current quarter, the Company offered an additional Convertible
Note Offering solely to accredited and sophisticated investors totaling
$250,000. The Note Holder has the option to convert the note offering for
one share of the Company's common stock for each $.05 principal and accrued
interest, 12% per annum, prior to the repayment in full by the Company of
the principal and interest of the Note. The Convertible Note outstanding
principal and interest accrued is due on or before June 15, 2001. The Note
Offering was closed March 31, 2001 and funds totaling $250,000 were
received by the Company under this note agreement.
8
In January 2001, the Company's board of directors authorized the issuance
of 378,573 shares of common stock to Larry G. Schafran, Chairman in lieu of
cash for expenses incurred during fund raising activities from year 1993
through year 2000.
The board of directors also authorized the issuance of 100,000 shares of
common stock to SafeScience, Inc. in February 2001. The shares were issued
as part of the terms of the January 5, 2001 Product Formula Agreement
regarding the sale of certain proprietary formulations for the household
goods market developed by the Company.
Note E: Disclosures about Reportable Segments
- ---------------------------------------------
Delta-Omega Technologies, Ltd. has three reportable segments: solvents and
cleaners, firefighting and spill response and oilfield. 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-hazardous and
non-reportable. The oilfield division produces products that cater to the
needs of the oil and gas industry.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Delta-Omega Technologies
evaluates performance based 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.
9
Delta-Omega Technologies, Inc.
Disclosure of Reported Segment Profit or Loss, and Segmented Assets
Six Month Period Ended February 28, 2001
Solvents & Firefighting & Oilfield *All
Cleaners Spill Response Other
-------- -------------- --------- -----
Revenues from external
Customers $ 178,947 $ 100,837 $ 74,038 $ --
Intersegment revenues -- -- -- --
Interest & Royalty Rev 4,129 -- -- --
Interest expense -- -- -- 46,319
Depreciation and
Amortization 18,255 10,381 7,158 248
Extraordinary Income -- -- -- --
Segment Profit (103,800) (61,372) (42,325) 314,860
Segment Assets -- -- -- 659,678
Expenditures for segment
Assets -- -- -- --
Delta-Omega Technologies, Inc.
Disclosure of Reported Segment Profit or Loss, and Segmented Assets
Six Month Period Ended February 28, 2000
Solvents & Firefighting & Oilfield *All
Cleaners Spill Response Other
-------- -------------- --------- -----
Revenues from external
Customers $ 342,634 $ 172,553 $ 86,035 $ --
Intersegment revenues -- -- -- --
Interest & Royalty Rev 31,276 -- -- --
Interest expense -- -- -- 89,531
Depreciation and
Amortization 13,161 6,696 3,233 11,905
Segment Profit (112,247) (73,020) (35,251) (147,533)
Segment Assets -- -- -- 765,202
Expenditures for segment
Assets -- -- -- 36,265
10
Delta-Omega Technologies, Inc.
Reconciliations of Reportable Segment Revenues
Profit or Loss, and Assets
February 28, February 28,
2001 2000
--------- ---------
Revenues
- --------
Total revenues for reportable segments $ 353,822 $ 601,221
========= =========
Profit or Loss
- --------------
Total profit or loss for reportable segments ($207,497) ($220,518)
Other profit or loss 314,860 (147,533)
--------- ---------
Income before income taxes and extraordinary items $ 107,363 ($368,051)
========= =========
Assets
- ------
Other assets $ 659,678 $ 765,202
Total assets for reportable segments -- --
--------- ---------
Consolidated total $ 659,678 $ 765,202
========= =========
Other significant Items
- -----------------------
Research and Development Expenses $ 38,898 $ 45,130
Depreciation Expense-R&D Equipment 248 11,905
*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
six month period ended February 29, 2001 and 2000.
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 the Company's SafeScience product line represents
approximately thirty-one percent (31%) of the Company's total consolidated
revenues for the six month period ended February 29, 2000.
11
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.
12
RESULTS OF OPERATIONS
- ---------------------
Net sales for the second quarter of Fiscal 2001 decreased $176,626 or 53%
when compared to the same quarter in the prior year. The decrease in net sales
was due primarily to the decrease in sales of the Company's consumer line of
products to SafeScience. During the fourth quarter of fiscal year 1999, the
demands for the SafeScience consumer line of products exceeded the Company's
packaging capability therefore, blending and packaging of these products was
outsourced to a third party manufacturer. As remuneration for the rights to
access these product formulations for third parties to manufacture large volumes
of finished goods for resale, the Company was granted a royalty based upon net
sales generated by this product line.
Net sales for the six month period decreased $247,400 or 41% when compared
to the same period in the prior year. During this period, sales from the
solvents and cleaners decreased $163,687 or 48% due to the SafeScience, Inc.
consumer line of products being outsourced to a third party manufacturer. Sales
from the firefighting and spill response division decreased $71,716 or 42%. The
decrease was primarily attributable to the Company's inability to fulfill orders
for certain UL listed firefighting foam concentrates. The supplier of one of the
products' constituents discontinued the manufacture of the raw material. The
Company is currently sourcing an alternative to this constituent for UL
approval. Oilfield products net sales also decreased $11,997 or 14%.
Cost of sales for the current quarter ended decreased $100,865 or 44% when
compared to the same period in Fiscal 2000. As a percentage of sales, cost of
sales increased from 69% to 81%.
The decrease in cost of sales was attributable to the decrease in net sales
during the current quarter. The increase in cost of sales as a percentage of
sales is due to the majority of net sales being generated from low gross margin
products, the oilfield degreasers.
On a year to date basis, cost of sales decreased $168,143 or 39% because of
decreased net sales. As a percentage of year to date sales, cost of sales
remained relatively constant from 72% to 74%.
Operating expenses for the second quarter decreased $45,954 or 18% when
compared to the same period in the prior fiscal year. For the six months ended,
operating expenses decreased $139,411 or 29%. The decreases were due to the
decrease in salaries expense associated with the reduction in the sales force.
Net other operating income for the current quarter was $2,441, a decrease
of $13,925 when compared with the same period in the prior year. In comparing
the two six month periods, net other operating income decreased by $28,277 from
$32,961 to $4,684. Net other operating income for the current period and the six
month period ended consists primarily of royalty income generated from the
Company's consumer line of products produced for SafeScience.
13
Interest expense was $14,504 for the current quarter as compared to $42,787
for the same period in the prior year. For the six month period ended, interest
expense decreased from $89,531 to $46,319. The decreases are due to the
discontinuation of factoring selected accounts receivable.
The Company incurred a net profit available to common shareholders of
$107,363 for the six months ended as compared to a net loss of $368,051 for the
same period in the prior year. The net profit was due to the January 5, 2001
agreement entered into by the Company concerning the sale of certain proprietary
formulations for the household goods market to SafeScience, Inc. The proceeds
from this agreement were classified as extraordinary income and are reflected in
the consolidated statements of operations.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company considers cash and cash equivalents as its principal measure of
liquidity. At February 28, 2001, the Company had an overdraft cash balance of
$11,621. 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 February 28, 2001 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 obtain additional capital, the Company commenced a private offering in March
2000 to raise approximately $550,000 solely to accredited and sophisticated
investors. The Company closed this offering in December 2000. Funds related to
this offering totaling $248,900 were received by the Company.
For immediate cash requirements, the Company negotiated a 120 day convertible
loan note totaling $100,000 with one of its emergency response customers. The
loan note is convertible at the option of the holder into common stock of the
Company, at an initial conversion rate of one share of common stock for each
sixteen cents loaned or the closing bid price of the Company's stock on the date
the Company receives notice of conversion, but in no case less than six cents
(.06) per share. The outstanding balance of the loan note is due on or before
14
May 15, 2001 plus interest at .03333% per day on the weighted average
outstanding balance. Funds totaling $100,000 had been advanced to the Company
under this note agreement. The Company also negotiated two additional short term
promissory notes dated September 13, 2000 and February 6, 2001 totaling $15,000
and $35,000, respectively from a member of the board of directors. The short
term promissory notes bear interest rates of 9.25% per annum and are due in full
plus accrued interest six months from the date of inception.
The Company implemented $250,000 Convertible Note Offering solely to accredited
and sophisticated investors in December 2000. The Note Holder has the option to
convert the note offering for one share of the Company's common stock for each
$.05 principal and accrued interest, 12% per annum, prior to the repayment in
full by the Company of the principal and interest of the Note. The Convertible
Note outstanding principal and interest accrued is due on or before June 15,
2001. The Note Offering was closed in April 2001 and funds totaling $250,000
were received by the Company under this note agreement.
The Company also has the option to sell 1 million common shares at an
undetermined price per share to obtain additional capital. 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.
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. Sales of the firefighting foams are expected to increase over
the next quarter as the Company markets emergency response products
internationally and to the petroleum sectors.
In July 1999, the Company had been contracted to furnish products to a
corporation, SafeScience, Inc., that had entered the Industrial and
Institutional and household goods markets. The SafeScience product line
encompasses over twenty (20) products for use in both marketplaces. Since
inception, May 1998, net sales generated as a result of this contract totaled
$479,675.
On September 1, 1999, the Company and SafeScience entered into an exclusive
License Agreement concerning certain proprietary formulations for the household
goods market developed by the Company and produced exclusively for SafeScience.
Terms of the License Agreement provided for SafeScience to provide confidential
15
access to these formulations to third party manufacturers for the purpose of
manufacturing large volumes of finished goods for resale. This arrangement
allowed SafeScience to outsource much greater product blending capacities than
the Company could provide with its existing facilities. A provision of the
License Agreement granted a royalty to the Company based upon net sales of
SafeScience products. Royalties as a result of this License Agreement totaled
$38,009.
On January 5, 2001 the Company and SafeScience entered into an agreement
concerning the sale of certain proprietary formulations for the household goods
market developed by the Company and produced exclusively for SafeScience. The
agreement granted all rights, title and interest to certain consumer cleaning
formulas and all instructions, procedures, know-how and other information
necessary for the manufacture thereof to SafeScience, Inc. In return for these
formulas, SafeScience, Inc paid $100,000 in cash to the Company, forgave the
$150,000 promissory note to SafeScience dated May 14, 1999, was to pay royalties
quarterly on 2% of net sales for all products produced from the SafeScience
Consumer Cleaning Formulas for four (4) years from the date of inception and
issued to the Company $200,000 worth of its common stock based on the closing
price of SafeScience's common stock on January 5, 2001. The agreement also
grants the Company the right to lease certain bottling equipment, owned by
SafeScience and located in the Company's facility, for a period of five (5)
years. As part of the agreement, the Company will grant to SafeScience, Inc.
100,000 shares of its common stock.
On January 22, 2001 SafeScience, Inc. closed its Industrial and Institutional
Operations and on February 23, 2001 announced the discontinuation of marketing
its consumer line of products.
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 2001. As sales volumes of the
Company's fire foam product line and industrial chemicals increase, the Company
expects cash flow from operations in fiscal 2001 to improve, although no
assurances can be made.
The Company has no unused credit facilities at this time.
16
Part II
Other Information
Part II. Item 6.Exhibits And Reports On Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
None
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 six months ended February 28,
2001 and February 28, 2000 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 16, 2001
17