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, 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:... 19,292,440 shares of common
stock as of June 30, 2001
This document is comprised of 19 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, 2001 ................... 2
Consolidated Statements of Operations, three months and nine
months ended May 31, 2001 and May 31, 2000 ..................... 3
Statements of Cash Flows, nine months ended
May 31, 2001 and May 31, 2000 .................................. 4
Notes to consolidated financial statements ....................... 5
Item 2. Management's discussion and analysis of financial condition
and results of operations ...................................... 14
Part II
Other Information
Item 6. Exhibits And Reports on Form 8-K ................................. 18
Signatures ................................................................ 19
Part I. Item 1. Financial Statements
Delta-Omega Technologies, Inc.
Consolidated Balance Sheet
(Unaudited)
ASSETS
------
May 31,
2001
------------
Current Assets
Cash 17,005
Accounts and notes receivable
Trade, net of allowance for losses 216,390
Accounts receivable-factored 10,898
Other 11,613
Inventories 118,691
Prepaid expenses 32,793
------------
Total current assets 407,390
Property and equipment, net of accumulated depreciation 67,981
Intangible assets, net of accumulated amortization 84,832
Marketable Equity Securities, carried at lower cost or market 156,800
Other assets 11,711
------------
Total assets $ 728,714
============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable 244,306
Customer prepayments 48,046
Note payable-board of director loans 481,304
Current maturities of long-term debt and leases 35,800
Convertible Loan Note 250,000
Other current and accrued liabilities 182,410
------------
Total current liabilities 1,241,866
Long-term debt and leases, net of current maturities 25,837
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 (43,200)
Additional paid-in capital 12,346,451
Retained deficit (12,865,158)
------------
Total shareholders' equity (538,989)
------------
Total liabilities and shareholders' equity $ 728,714
============
See accompanying notes to consolidated financial statements.
2
Delta-Omega Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
May 31 May 31
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales and gross revenues
Net product sales $ 224,836 $ 370,644 $ 578,658 $ 971,865
Cost of sales and revenues 158,763 254,737 421,903 686,020
------------ ------------ ------------ ------------
Gross profit 66,073 115,907 156,755 285,845
Cost and expenses
Selling, general and administrative 141,899 228,713 444,762 652,539
Research and development 32,208 29,275 71,354 86,869
------------ ------------ ------------ ------------
Operating Loss (108,034) (142,081) (359,361) (453,563)
Other operating income, net 664 22,835 5,348 55,797
Interest expense (30,064) (34,820) (76,383) (124,351)
Extraordinary Income 50,000 0 450,325 0
------------ ------------ ------------ ------------
Net profit/(loss) available to common
shareholders $ (87,434) $ (154,066) $ 19,929 $ (522,117)
============ ============ ============ ============
Weighted average shares outstanding 19,225,773 17,236,453 19,001,967 16,361,494
============ ============ ============ ============
Net profit/(loss) per common share $ .005 $ (.01) $ .001 $ (.03)
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
3
Delta-Omega Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
May 31,
2001 2000
--------- ---------
Net cash used in operating activities $(194,943) $(458,511)
Cash flows from investing activities:
Property acquisitions 0 (43,222)
Proceeds from sale of property and equipment 0 700
--------- ---------
Net cash flows used in investing activities 0 (42,522)
Cash flows from financing activities:
Principal payments on long-term debt and
capital leases (28,704) (24,283)
Re payments on borrowings (19,717) (20,000)
Proceeds from factoring (185,825) (30,712)
Proceeds from issuance of common stock 0 248,900
Proceeds from borrowing 448,075 253,033
--------- ---------
Net cash flows provided by (used in)
financing activities 213,829 488,362
Net increase (decrease) in cash and equivalents 18,886 (12,671)
Cash and equivalents, beginning of period (1,881) 4,858
--------- ---------
Cash and equivalents, end of period $ 17,005 $ (7,813)
========= =========
See accompanying notes to consolidated financial statements.
4
Delta-Omega Technologies, Inc.
Notes to Consolidated Financial Statements
May 31, 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 May 31, 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 was 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 would have received notice of
5
conversion, but in no case less than six cents (.06) per share. The
outstanding balance of the loan note was due on or before 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 three additional short term
promissory notes dated September 13, 2000, February 6, 2001 and May 14,
2001 totaling $15,000, $35,000 and $25,000, 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 a $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
6
of 8.25% per annum. Three additional short term promissory notes were
negotiated by the Company from a member of the board of directors during
fiscal year 2001. The short term promissory notes dated September 13, 2000,
February 6, 2001 and May 14, 2001 total $20,000, $35,000 and $25,000,
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. The
September 13, 2000 and February 6, 2001 promissory notes were paid in full
plus accrued interest in the current quarter.
Also in the current quarter, the Company negotiated a consolidation of
notes payable due to a member of the board of directors. The consolidated
promissory note includes promissory notes totaling $107,000 plus an
additional $43,650.40 loaned to the Company for immediate cash
requirements. The consolidated promissory note is repayable in 35 equal
installment payments consisting of principal and interest, in the amount of
$4,465.87 each, commencing on May 15, 2001 and continuing thereafter, and
one (1) final installment payment consisting of the full amount of the
principal and all accrued interest remaining due and payable on April 15,
2004.
Related party notes payable totaled $481,304 as of May 31, 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 May 31, 2001.
Fees incurred are classified as interest expense and reflected in the
consolidated statements of operations. No interest expense related to the
factoring of accounts receivable for the current fiscal quarter was
accrued. Repayment of any advances is guaranteed by two (2) members of the
Company's board of directors. Fees totaling $10,000 were accrued as a
result of an advance from Texas Funding, Inc. to the Company.
7
Accounts and Notes Receivable at the end of May 31, 2001 consists of the
following:
Accounts Receivable, Trade $ 226,390
Accounts Receivable, Factored 10,898
Allowance for Doubtful Accounts (10,000)
---------
Total $ 227,288
=========
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, 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
8
(.06) per share. Funds totaling $100,000 had been advanced to the Company
under this note agreement. On February 15, 2001, the note holder elected
not to convert and issued a demand for repayment. Negotiations to satisfy
the obligation are in progress. Management expects to have this favorably
resolved in the next quarter.
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.
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: Other Comprehensive Loss
- --------------------------------
The Tables below present the components of the Company's other
comprehensive loss for the quarter ended and the nine months ended May 31,
2001. Due to recurring operating losses of the Company, there is no tax
effect associated with any component of other comprehensive loss.
Three months Pre-tax Tax After
Ended Amount Expense Tax
May 31, 2001 Benefit Amount
------------ -------- -------- --------
Unrealized Loss on
Marketable Equity
Securities $(18,192) $ -0- $(18,192)
-------- -------- --------
Other Comprehensive
Loss $(18,192) $ -0- $(18,192)
-------- -------- --------
9
Nine months Pre-tax Tax After
Ended Amount Expense Tax
May 31, 2001 Benefit Amount
------------ -------- -------- --------
Unrealized Loss on
Marketable Equity
Securities $(43,200) $ -0- $(43,200)
-------- -------- --------
Other Comprehensive
Loss $(43,200) $ -0- $(43,200)
-------- -------- --------
Note F: Contingencies
- ---------------------
In March 2001, the Company negotiated a 120 day convertible loan note
totaling $100,000 with one of its emergency response customers. The loan
note was 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
was due on or before May 15, 2001 plus interest at .03333% per day on the
weighted average outstanding balance. In accordance with the terms of the
Convertible Loan Note, repayment is collateralized by a first priority lien
of the fire fighting formulae. On February 15, 2001, the note holder
elected not to convert and issued a demand for repayment. Negotiations to
satisfy the obligation are in progress. Management expects to have this
favorably resolved in the next quarter.
Note G: 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.
10
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
Nine Month Period Ended May 31, 2001
Solvents & Firefighting & Oilfield *All
Cleaners Spill Response Other
---------- -------------- --------- ---------
Revenues from external
Customers $ 274,503 $ 195,920 $ 108,235 $ --
Intersegment revenues -- -- -- --
Interest & Royalty Rev 5,348 -- -- --
Interest expense -- -- -- 76,383
Depreciation and
Amortization 25,771 18,255 9,664 372
Extraordinary Income -- -- -- 450,325
Segment Profit (145,958) (103,387) (54,735) 324,009
Segment Assets -- -- -- 728,714
Expenditures for segment
Assets -- -- -- --
11
Delta-Omega Technologies, Inc.
Disclosure of Reported Segment Profit or Loss, and Segmented Assets
Nine Month Period Ended May 31, 2000
Solvents & Firefighting & Oilfield *All
Cleaners Spill Response Other
---------- -------------- --------- ---------
Revenues from external
Customers $ 579,096 $ 248,940 $ 143,829 $ --
Intersegment revenues -- -- -- --
Interest & Royalty Rev 55,275 -- -- --
Interest expense -- -- -- 124,351
Depreciation and
Amortization 36,161 15,670 8,437 19,294
Segment Profit (219,596) (95,158) (51,240) (156,123)
Segment Assets -- -- -- 804,205
Expenditures for segment
Assets -- -- -- 42,522
Delta-Omega Technologies, Inc.
Reconciliations of Reportable Segment Revenues
Profit or Loss, and Assets
May 31, May 31,
2001 2000
--------- ---------
Revenues
- --------
Total revenues for reportable segments $ 578,658 $ 971,865
========= =========
Profit or Loss
- --------------
Total profit or loss for reportable segments ($299,951) ($365,994)
Other profit or loss 319,880 (156,123)
--------- ---------
Income before income taxes and extraordinary items $ 19,929 ($522,117)
========= =========
Assets
- ------
Other assets $ 728,714 $ 804,205
Total assets for reportable segments -- --
--------- ---------
Consolidated total $ 728,714 $ 804,205
========= =========
Other significant Items
- -----------------------
Research and Development Expenses $ 70,982 $ 67,575
Depreciation Expense-R&D Equipment 372 19,294
12
*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
nine month period ended May 31, 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 one of its oilfield customers represents
approximately nineteen percent (19%) of total consolidated revenues for the nine
month period ended May 31, 2001. Revenues from the Company's SafeScience product
line represents approximately twenty-nine percent (29%) of the Company's total
consolidated revenues for the nine month period ended May 31, 2000.
13
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 2001 decreased $145,808 or
40% 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. 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. With the
cessation of the consumer and industrial product marketing by SafeScience,
no future royalties are anticipated.
Net sales for the nine month period decreased $393,207 or 41% when
compared to the same period in the prior year. During this period, sales
from the solvents and cleaners decreased $304,593 or 53% 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 $53,020 or 22%. The decrease was primarily attributable to the
14
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 $35,594 or 25%; due primarily to the
decline of sales in the current quarter from specialty oilfield products.
Cost of sales for the current quarter ended decreased $95,974 or 38%
when compared to the same period in Fiscal 2000. As a percentage of sales,
cost of sales remained relatively constant from 69% to 71%.
The decrease in cost of sales was attributable to the decrease in net
sales during the current quarter. Fluctuations in cost of sales as a
percentage of sales are directly related to which product group composes
the majority of net sales for the periods compared.
On a year to date basis, cost of sales decreased $264,117 or 39%
because of decreased net sales. As a percentage of year to date sales, cost
of sales remained relatively constant from 71% to 73%.
Operating expenses for the third quarter decreased $86,814 or 38% when
compared to the same period in the prior fiscal year. For the nine months
ended, operating expenses decreased $207,777 or 32%. 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 $664, a
decrease of $22,171 when compared with the same period in the prior year.
In comparing the two nine month periods, net other operating income
decreased by $50,449 from $55,797 to $5,348. Net other operating income for
the current period and the nine month period ended consists primarily of
royalty income generated from the Company's consumer line of products
produced for SafeScience.
Interest expense was $30,064 for the current quarter as compared to
$34,820 for the same period in the prior year. For the nine month period
ended, interest expense decreased from $124,351 to $76,383. The decreases
are due to the discontinuation of factoring selected accounts receivable.
The Company incurred a net profit available to common shareholders of
$19,929 for the nine months ended as compared to a net loss of $522,117 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.
15
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company considers cash and cash equivalents as its principal measure of
liquidity. At May 31, 2001, the Company had a cash balance of $17,005. 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 May 31,
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 was 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 would have received notice of
conversion, but in no case less than six cents (.06) per share. The
outstanding balance of the loan note was due on or before 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. On February 15, 2001, the note holder elected not to convert and
issued a demand for repayment. Negotiations to satisfy the obligation are
in progress. Management expects to have this favorably resolved in the next
quarter. The Company also negotiated three additional short term promissory
notes dated September 13, 2000, February 6, 2001 and May 14, 2001 totaling
$20,000, $35,000 and $25,000, 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 September 13, 2000 and February 6, 2001 promissory notes
were paid in full plus accrued interest in the current quarter.
The Company implemented a $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.
16
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.
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.
On April 17, 2001, the Company announced that it entered into a joint
venture with King Worldwide, Inc. to form King-Delta Technologies, Inc. The
joint venture will offer clients the combined strengths of proprietary
chemical and management service solutions. Its first project is expected to
be in Latin America to recover valuable energy from hydrocarbon wastes.
King-Delta Technologies, Inc. will offer clients in the petroleum refining,
petrochemical and chemical industries specialized chemicals, process
design, environmental control and project management. It is preparing its
first sole-source proposal to a major company to address recycling,
recovery and re-use of valuable hydrocarbons from waste streams generated
by refining operations. Working with actual samples from the collection
source, it has demonstrated a consistent ability to reduce the volume of
residual waste by 70%, while recovering nearly 50% of the valuable
hydrocarbon content.
King Worldwide, Inc. is a privately held company based in Houston, Texas
which provides independent management services internationally on capital
projects, technology commercialization, and human development. It is an
associate company of Robert A. King, Inc (RAKI). Robert A. King founded
both RAKI and earlier
King-Wilkinson. It has associated offices worldwide including King Mexicana
S.A. de C.V. in Mexico. King and its associates have worked with more than
300 clients, completing over 200 projects, in 45 countries, totaling over
US $30 billion in investments and are currently working on projects in
Mexico with total capital investments worth over US $1.5 billion.
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.
17
Part II
Other Information
Part II. 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 23, 2001 was held on April 24, 2001 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 are reported by Computershare Investor Services and
Delta-Omega Technologies, Inc. as the final totals for the proposals voted on.
Proposal #1 - Election of Directors
For Withhold
--- --------
L.G. Schafran 6,395,159 -0-
James V. Janes, III 6,395,159 -0-
Total voted shares represented by proxy: 6,395,159
Percentage of the outstanding votable shares: 27.91%
Outstanding votable shares: 22,917,440
Results: All directors hereby re-elected by total voted shares represented by
proxy.
Proposal #2 - Reappointment of auditors
For Against Abstain
--- ------- -------
Broussard, Poche, Lewis
and Breaux, LLP 6,393,308 -0- 1,851
Results: The reappointment of Broussard, Poche, Lewis and Breaux LLP as the
auditing firm for the corporation is hereby ratified by total voted shares
represented by proxy.
Item 6. Exhibits And Reports On Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
None
18
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, 2001
and May 31, 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: July 23, 2001
19