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, 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)
100-A Burgess Drive, 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: 22,379,034 shares of common
stock as of December 31, 2001
This document is comprised of 20 pages
Delta-Omega Technologies, Inc.
Index to Quarterly Report
Part I
Financial Statements
Item 1. Financial Statements Page
- ------- -------------------- ----
Consolidated Balance Sheet as of November 30, 2001 ........... 2
Consolidated Statements of Operations, three months ended
November 30, 2001 and November 30, 2000 ............. 3
Statements of Cash Flows, three months ended
November 30, 2001 and November 30, 2000 ............. 4
Notes to consolidated financial statements ................... 5
Item 2. Management's discussion and analysis of financial condition
and results of operations ........................... 13
Part II
Other Information
Item 6. Exhibits And Reports on Form 8-K .................................. 19
Signatures ................................................................. 20
Part I. Item 1. Financial Statements
--------------------
Delta-Omega Technologies, Inc.
Consolidated Balance Sheet
(Unaudited)
ASSETS
------
November 30,
2001
------------
Current Assets
Cash 123
Accounts and notes receivable
Trade, net of allowance for losses 174,700
Other 472
Inventories 46,068
Prepaid expenses 12,859
------------
Total current assets 234,222
Property and equipment, net of accumulated depreciation 56,986
Intangible assets, net of accumulated amortization 80,595
Marketable Equity Securities, carried at lower cost or market 29,696
Other assets 2,831
------------
Total assets $ 404,330
============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable 205,496
Customer prepayments 48,046
Note payable-board of director loans 590,930
Current maturities of long-term debt and leases 129,758
Convertible Loan Note 40,000
Other current and accrued liabilities 123,653
------------
Total current liabilities 1,137,883
Long-term debt and leases, net of current maturities 14,027
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, 2,330,000 series C 3,625
Common stock, $.001 par value, shares authorized,
100,000,000; issued and outstanding 22,379,034 22,379
Unrealized Loss on Valuation of Marketable Equity Securities (2,304)
Additional paid-in capital 12,556,340
Retained deficit (13,327,620)
------------
Total shareholders' equity (747,580)
------------
Total liabilities and shareholders' equity $ 404,330
============
See accompanying notes to consolidated financial statements.
2
Delta-Omega Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
November 30
2001 2000
------------ ------------
Net sales and gross revenues
Net product sales $ 114,852 $ 195,849
Cost of sales and revenues 93,333 134,784
------------ ------------
Gross profit 21,519 61,065
Cost and expenses
Selling, general and administrative 97,542 114,663
Research and development 21,548 20,093
------------ ------------
Operating Loss (97,571) (73,691)
Other operating income, net -0- 2,441
Interest expense (26,145) (31,815)
------------ ------------
Net profit/(loss) available to common
shareholders $ (123,716) $ (103,065)
============ ============
Weighted average shares outstanding 22,379,034 18,747,210
============ ============
Net profit/(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,
2001 2000
--------- --------
Net cash used in operating activities $(49,336) $(70,934)
Cash flows from investing activities:
Net cash flows used in investing activities 0 0
Cash flows from financing activities:
Bank overdraft 0 9,405
Principal payments on long-term debt and
capital leases (7,708) (5,021)
Re payments on borrowings (38,389) (20,000)
Proceeds from borrowing 90,163 76,300
-------- --------
Net cash flows provided by (used in)
financing activities 44,066 70,934
Net increase (decrease) in cash and equivalents (5,270) 0
Cash and equivalents, beginning of period 5,393 0
-------- --------
Cash and equivalents, end of period $ 123 $ 0
======== ========
See accompanying notes to consolidated financial statements.
4
Delta-Omega Technologies, Inc.
Notes to Consolidated Financial Statements
November 30, 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 unaudited consolidated 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, 2001.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. 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, 2002.
For further information, refer to the consolidated financial statements
and footnotes included in Delta-Omega Technologies, Inc.'s annual report
on form 10KSB for the year ended 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.
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, 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 six additional
short term promissory notes in fiscal year 2001 totaling $143,000 and
two additional short term promissory notes in the current quarter
totaling $35,163.42 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 one month to twelve months from the date
of inception. Two of the promissory notes totaling $55,000 were paid in
full plus accrued interest in the third quarter of fiscal year 2001 and
one promissory note totaling $28,000 was paid in full during the current
quarter.
On September 11, 2001, the Company negotiated an agreement with Janes
Industries, Inc. in which Janes Industries, Inc. agreed to loan the
Company $75,000 due and payable with a fixed fee as set forth in the
loan agreement between Janes Industries, Inc. and Texas Capital Funding,
Inc. A member of the Company's board of directors is the major
shareholder of Janes Industries, Inc. In relation to the loan, the full
amount ($75,000) was advanced to the Company.
5
The Company also 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. The Company pledged its firefighting and emergency response
formulations as collateral for the convertible loan note in the event
that the noteholder elected not to convert the note into equity and the
Company was unable to repay the loan and accrued interest when it became
due. The noteholder issued its demand for payment by May 15, 2001 and
opted to retain the collateral in satisfaction of the obligations due
and owed in accordance with the terms of the note. Subsequent to the
retention of the collateral by the noteholder, negotiations were
initiated by the noteholder with the Company concerning Manufacturing
and Distribution agreements that would allow the Company to continue to
manufacture and market the firefighting and emergency response product
line. Management expects favorable results will occur from these
negotiations. In the event that no Manufacturing and Distribution
agreements are implemented with the current owners of the formulations,
the Company will have to remove the firefighting and emergency response
products that were collateralized from its product offering. The Company
would experience an adverse impact on its ability to generate revenues
if it is precluded from marketing these products. Management is in the
process of negotiating a contingency plan that may be necessary to
implement in the event that no future relationship materializes with the
present owners of the formulations.
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. Also, 160,000 common shares of
SafeScience, Inc.'s stock are pledged as a security interest to the
participants. The Convertible Note outstanding principal and interest
accrued was 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. In August 2001, the majority participant in
the Convertible Note Offering optioned to receive 134,400 shares of the
SafeScience, Inc.'s common stock in lieu of repayment of $210,000 plus
accrued interest.
6
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 $52,000 and $7,000 bear interest rates of
8.25% per annum.
The Company also negotiated six additional short term promissory notes
in fiscal year 2001 totaling $143,000 and two additional short term
promissory notes in the current quarter totaling $35,163.42 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 one month to twelve months from the date of inception. Two of
the promissory notes totaling $55,000 were paid in full plus accrued
interest in the third quarter of fiscal year 2001 and one promissory
note totaling $28,000 was paid in full during the current quarter.
In the fourth quarter of fiscal year 2001, 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.
On September 11, 2001, the Company negotiated an agreement with Janes
Industries, Inc. in which Janes Industries, Inc. agreed to loan the
Company $75,000 due and payable with a fixed fee as set forth in the
loan agreement between Janes Industries, Inc. and Texas Capital Funding,
Inc. A member of the Company's board of directors is the major
shareholder of Janes Industries, Inc. In relation to the loan, the full
amount ($75,000) was advanced to the Company.
7
Related party notes payable totaled $590,930 as of November 30, 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
-----------------------------
Accounts and Notes Receivable at the end of November 30, 2001 consists
of the following:
Accounts Receivable, Trade $184,700
Allowance for Doubtful Accounts (10,000)
-------
Total $174,700
========
Note D: Shareholders' Equity
--------------------
Fiscal Year 2001
----------------
In December 2000, 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.
During 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.
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.
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
8
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. On February 15,
2001, the note holder elected not to convert and issued a demand for
repayment. The noteholder issued its demand for payment by May 15, 2001
and opted to retain the collateral, the Company's firefighting and
emergency response formulations, in satisfaction of the obligations due
and owed in accordance with the terms of the note.
In fiscal year 2001, the Company granted 208,332 stock options as part
of an agreement to an employee in lieu of cash for research and
development services rendered. These stock options are per an agreement
authorizing the issuance of 416,667 stock options of which 50% of the
options vested in the current fiscal year. The remainder of the stock
options vest when specific milestones are met. The exercise price is
$.10 per share and expire three years from date of inception.
277,500 stock options with an exercise price of $.75 per share expired
during fiscal year 2001. These options were part of the 1991 Plan, a
non-qualified employee, directors and officers stock option plan. Also
during fiscal year 2001, 50,000 stock options outside the Company's
Stock Option Plan expired. The exercise prices ranged from $.51 - $.75
per share.
During fiscal year 2001, the right to convert to common stock expired
for holders of 1,295,000 shares of Preferred "B" stock and 2,330,000
shares of Preferred "C" stock and the "Z" Warrants attached to the
Company's Preferred "C" stock expired.
Fiscal Year 2002
----------------
During the current quarter of fiscal year 2002, the Company's board of
directors authorized the issuance of stock options to purchase 1,014,666
shares of common stock to Marian A. Bourque, James V. Janes, III and
Larry G. Schafran in lieu of cash as compensation for services rendered
pursuant to the Company's non-qualified employee incentive stock option
plan.
The Company's board of directors also authorized the issuance of 4,500
shares of common stock to SafeScience, Inc. as per the terms of the
amendment to the consumer formulation sale agreement dated January 5,
2001.
9
In January 2002, the Company's board of directors authorized the
extension of warrants to purchase 150,000 shares of common stock at an
exercise price of $.75 per share and options to purchase 150,000 shares
of common stock at an exercise price of $.90 per share for an additional
three years. The warrants were granted as per the terms of loan
agreements. The options were granted in lieu of cash for professional
brokerage services.
Note E: Other Comprehensive Loss
------------------------
The Tables below present the components of the Company's other
comprehensive loss for the quarter ended and the three months ended
November 30, 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
November 30, 2001 Benefit Amount
----------------- ---------- ------- ------
Unrealized Loss on
Marketable Equity
Securities $ (2,304) $ -0- $ (2,304)
---------- ----------- ----------
Other Comprehensive
Loss $ (2,304) $ -0- $ (2,304)
---------- ----------- ----------
Note F: Contingencies
-------------
The Company also 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. The Company pledged its firefighting and emergency response
formulations as collateral for the convertible loan note in the event
that the noteholder elected not to convert the note into equity and the
Company was unable to repay the loan and accrued interest when it became
due. The noteholder issued its demand for payment by May 15, 2001 and
opted to retain the collateral in satisfaction of the obligations due
and owed in accordance with the terms of the note. Subsequent to the
retention of the collateral by the noteholder, negotiations were
initiated by the noteholder with the Company concerning Manufacturing
and Distribution agreements that would allow the Company to continue to
manufacture and market the firefighting and emergency response product
line. Management expects favorable results will occur from these
negotiations. In the event that no Manufacturing and Distribution
agreements are implemented with the current owners of the formulations,
the Company will have to remove the firefighting and emergency response
products that were collateralized from its product offering. The Company
would experience an adverse impact on its ability to generate revenues
if it is precluded from marketing these products. Management is in the
process of negotiating a contingency plan that may be necessary to
implement in the event that no future relationship materializes with the
present owners of the formulations.
10
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.
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
Three Month Period Ended November 30, 2001
Solvents & Firefighting & *All
Cleaners Spill Response Oilfield Other
-------- -------------- -------- -----
Revenues from external
Customers $ 52,896 $ 35,861 $ 26,095 $ --
Intersegment revenues -- -- -- --
Interest & Royalty Rev -- -- -- --
Interest expense -- -- -- 26,145
Depreciation and
Amortization 4,917 3,314 2,458 --
Extraordinary Income -- -- -- --
Segment Profit (46,997) (31,672) (23,499) (21,548)
Segment Assets -- -- -- 404,330
Expenditures for segment
Assets -- -- -- --
Delta-Omega Technologies, Inc.
Disclosure of Reported Segment Profit or Loss, and Segmented Assets
Three Month Period Ended November 30, 2000
Solvents & Firefighting & *All
Cleaners Spill Response Oilfield Other
-------- -------------- -------- -----
Revenues from external
Customers $ 95,059 $ 64,785 $ 36,005 $ --
Intersegment revenues -- -- -- --
Interest & Royalty Rev 2,441 -- -- --
Interest expense -- -- -- 31,815
Depreciation and
Amortization 2,682 2,367 10,729 124
Segment Profit (8,697) (7,673) (34,787) (51,908)
Segment Assets -- -- -- 526,410
Expenditures for segment
Assets -- -- -- --
11
Delta-Omega Technologies, Inc.
Reconciliations of Reportable Segment Revenues
Profit or Loss, and Assets
November 30, November 30,
2001 2000
Revenues
- --------
Total revenues for reportable segments $ 114,852 $ 195,849
========= =========
Profit or Loss
- --------------
Total profit or loss for reportable segments ($102,168) ($ 51,157)
Other profit or loss (21,548) (51,908)
--------- ---------
Income before income taxes and extraordinary items ($123,716) ($103,065)
========= =========
Assets
- ------
Other assets $ 404,330 $ 526,410
Total assets for reportable segments -- --
--------- ---------
Consolidated total $ 404,330 $ 526,410
========= =========
Other significant Items
- -----------------------
Research and Development Expenses $ 21,548 $ 19,969
Depreciation Expense-R&D Equipment -0- 124
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
three month period ended November 30, 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 eighteen percent (18%) of total consolidated revenues for the
three month period ended November 30, 2001.
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 2002 decreased $80,997
or 41% 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
13
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 firefighting and spill response sales for the three month
period decreased $28,924 or 45% when compared to the same period in
the prior year. 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 $9,910 or 28%;
due primarily to the decline in the oil and gas exploration market.
Also during this period, sales from the solvents and cleaners
decreased $42,163 or 44% as a result of the cancellation of the
SafeScience consumer line of products.
Cost of sales for the current quarter ended decreased $41,451 or
31% when compared to the same period in Fiscal 2001. 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 fluctuation in cost of sales
as a percentage of sales is directly related to the decrease in net
sales for the current quarter. The Company's production costs remained
constant as the product volumes decreased.
Operating expenses for the first quarter decreased $15,666 or 12%
when compared to the same period in the prior fiscal year. The
decrease was due to the decrease in operating expenses recovered
relative to the relocation of the Company's administrative and
production facilities.
Net other operating income for the current quarter decreased
$2,441 when compared with the same period in the prior year. Net other
operating income for the two comparable periods consists primarily of
royalty income generated from the Company's consumer line of products
produced for SafeScience.
Interest expense was $26,145 for the current quarter as compared
to $31,815 for the same period in the prior year. The decrease is due
to the discontinuation of factoring selected accounts receivable.
14
The Company incurred a net loss available to common shareholders
of $123,716 for the three months ended as compared to a net loss of
$103,065 for the same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company considers cash and cash equivalents as its principal
measure of liquidity. At November 30, 2001, the Company had a cash
balance of $123. 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 six additional
short term promissory notes in fiscal year 2001 totaling $143,000 and
two additional short term promissory notes in the current quarter
totaling $35,163.42 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 one month to twelve months from the
date of inception. Two of the promissory notes totaling $55,000 were
paid in full plus accrued interest in the third quarter of fiscal year
2001 and one promissory note totaling $28,000 was paid in full during
the current quarter.
On September 11, 2001, the Company negotiated an agreement with Janes
Industries, Inc. in which Janes Industries, Inc. agreed to loan the
Company $75,000 due and payable with a fixed fee as set forth in the
loan agreement between Janes Industries, Inc. and Texas Capital
Funding, Inc. A member of the Company's board of directors is the
major shareholder of Janes Industries, Inc. In relation to the loan,
the full amount ($75,000) was advanced to the Company.
The Company also 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
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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. The Company pledged its firefighting and
emergency response formulations as collateral for the convertible loan
note in the event that the noteholder elected not to convert the note
into equity and the Company was unable to repay the loan and accrued
interest when it became due. The noteholder issued its demand for
payment by May 15, 2001 and opted to retain the collateral in
satisfaction of the obligations due and owed in accordance with the
terms of the note. Subsequent to the retention of the collateral by
the noteholder, negotiations were initiated by the noteholder with the
Company concerning Manufacturing and Distribution agreements that
would allow the Company to continue to manufacture and market the
firefighting and emergency response product line. Management expects
favorable results will occur from these negotiations. In the event
that no Manufacturing and Distribution agreements are implemented with
the current owners of the formulations, the Company will have to
remove the firefighting and emergency response products that were
collateralized from its product offering. The Company would experience
an adverse impact on its ability to generate revenues if it is
precluded from marketing these products. Management is in the process
of negotiating a contingency plan that may be necessary to implement
in the event that no future relationship materializes with the present
owners of the formulations.
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. Also, 160,000 common shares
of SafeScience, Inc.'s stock are pledged as a security interest to the
participants. The Convertible Note outstanding principal and interest
accrued was 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. In August 2001, the majority
participant in the Convertible Note Offering optioned to receive
134,400 shares of the SafeScience, Inc.'s common stock in lieu of
repayment of $210,000 plus accrued interest.
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.
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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.
17
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 2002. As sales volumes of the Company's fire foam product line
and industrial chemicals increase, the Company expects cash flow from
operations in fiscal 2002 to improve, although no assurances can be
made.
The Company has no unused credit facilities at this time.
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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
19
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 November 30,
2001 and November 30, 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: January 22, 2002
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