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, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number 0-24506
Delta-Omega Technologies, Inc.
(Exact name of small business issuer as specified in its Charter)
Colorado 84-1100774
(State of Incorporation) (I.R.S. Employer Identification Number)
119 Ida Road, Broussard, Louisiana 70518
(Address of principal executive offices) (Zip Code)
(318) 837-3011
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes...X... No........
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date:...14,996,589 shares of common
stock as of December 31, 1998
This document is comprised of 11 pages
Delta-Omega Technologies, Inc.
Index to Quarterly Report
Part I
Financial Statements
Item 1. Financial Statements Page
Consolidated Balance Sheet as of November 30, 1998 2
Consolidated Statements of Operations, three months
ended November 30, 1998 and 1997 3
Statements of Cash Flows, three months ended
November 30, 1998 and 1997 4
Notes to consolidated financial statements 5
Item 2. Management's discussion and analysis of financial
condition and results of operations 5
Part II
Other Information
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission Of Matters To A Vote Of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits And Reports on Form 8-K 9
Signatures 10
Part I. Item 1. Financial Statements
Delta-Omega Technologies, Inc.
Consolidated Balance Sheet
(Unaudited)
ASSETS
November 30,
1998
Current Assets
Cash and equivalents $ 7,483
Accounts and notes receivable
Trade, net of allowance for losses 127,034
Other 9,000
Inventories 229,539
Prepaid expenses 19,970
_______________
Total current assets 393,026
Property and equipment, net of
accumulated depreciation 241,501
Intangible assets, net of accumulated amortization 105,758
Other assets 10,618
_______________
Total assets $ 750,903
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable 231,938
Customer prepayments 26,057
Note payable - Janes Industries 25,000
Current maturities of long-term debt and leases 20,204
Other current and accrued liabilities 20,823
_______________
Total current liabilities 324,022
Long-term debt and leases, net of current maturities 36,255
Shareholders' equity:
Convertible, 7 percent cumulative, non-participating
preferred stock, $.001 par value, shares authorized,
40,000,000; issued and outstanding 1,335,000 series B,
2,396,667 series C 3,732
Common stock, $.001 par value, shares authorized,
100,000,000; issued and outstanding 14,996,589 14,996
Additional paid-in capital 11,580,521
Retained deficit (11,208,623)
_________________
Total shareholders' equity 390,626
_________________
Total liabilities and shareholders' equity $ 750,903
=================
See accompanying notes to consolidated financial statements.
Delta-Omega Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
November 30,
1998 1997
Net sales and gross revenues
Net product sales $ 299,554 $ 322,029
Cost of sales and revenues 206,512 213,900
___________ ____________
Gross profit 93,042 108,129
Cost and expenses
Selling, general and administrative 187,078 306,612
Research and development 58,659 104,575
___________ ____________
Operating Loss (152,695) (303,058)
Other operating income, net 12,809 2,418
Interest expense (1,931) (2,628)
___________ _____________
Net loss available to common shareholders $ (141,817) $ (303,268)
=========== =============
Weighted average shares outstanding 14,996,589 13,230,235
============= =============
Net loss per common share $ (.01) $ (.02)
============= =============
See accompanying notes to consolidated financial statements.
Delta-Omega Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
November 30,
1998 1997
Net cash used in operating activities $ (172,818) $ (276,407)
Cash flows from investing activities:
Property acquisitions 0 (5,204)
Proceeds from sale of property
and equipment 12,000 0
Patent costs (2,023) (20)
Deposits 0 (940)
______________ ____________
Net cash flows used in investing
activities 9,977 (6,164)
Cash flows from financing activities:
Principal payments on bank
notes payable (3,158) (2,296)
Capital lease financing and
other notes (2,192) (1,982)
Proceeds from borrowing 25,000 0
______________ ___________
Net cash flows provided by (used in)
financing activities 19,650 (4,278)
Net increase (decrease) in cash and
equivalents (143,191) (286,849)
Cash and equivalents, beginning of
period 150,674 346,574
______________ _____________
Cash and equivalents, end of period $ 7,483 $ 59,725
============== =============
See accompanying notes to consolidated financial statements.
Delta-Omega Technologies, Inc.
Notes to Consolidated Financial Statements
November 30, 1998
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, 1998 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, 1999.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary for a fair presentation of
operating results for the interim periods presented have been made.
Interim financial data presented herein are unaudited.
Since the Company commenced operations, it has incurred recurring losses
and negative cash flows from operations. The Company does not have sufficient
working capital available as of November 30, 1998, 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 has the option to sell 1 million
common shares at an undetermined price per share. These shares are remaining
from 2 million shares authorized for sale to accredited and sophisticated
investors by the Company's board of directors in January 1998. Another option
to raise additional capital is for members of the Company's board of directors
to exercise outstanding personal options and/or warrants. For immediate
capital requirements, the Company expects to negotiate loans from board of
director members until sufficient funds are generated from operations or the
financial instruments discussed above are implemented. In November 1998, the
Company negotiated a $50,000 loan from a member of the board of directors. The
funds allowed the Company to continue current operations through January
1999. The Company is currently in the process of negotiating other loans from
members of the board of directors and implementing one or both financial
instruments discussed above.
Note B: Related party transactions
During the first quarter of Fiscal 1998, the Company negotiated a 30 day and a
90 day $25,000 promissory note from a member of the board of directors to meet
its immediate cash requirements. The promissory notes bear an interest rate of
8.25% compounded annually. The principal and interest of the 30 day promissory
note were paid in full as of November 30, 1998. The principal and interest of
the second promissory note are payable in full on January 30, 1999.
Note C: Property and equipment
In November 1998, the Company sold components of the TVIES "fines" treatment
unit and the soil washing machine for $12,000. The equipment was written down
in fiscal 1998 and the Company recorded an asset impairment in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121. The proceeds from
the sale were recognized as other income in the accompanying consolidated
statement of operations.
Note D: Contingencies
The Company has a license agreement with Gradient Technology, Inc. ("GTI")
under which the Company has committed to fund $200,000 of research and
development costs incurred by GTI when certain conditions are met. These
conditions include the Company obtaining financing of approximately $1.25
million to construct the equipment and obtaining a commitment from a customer
to purchase the process materials. Through 11/30/98, GTI has incurred
research and development costs of $107,059, which the Company would be
obligated to reimburse GTI if the above conditions are met. This obligation
has not been accrued by the Company at 11/30/98. The Company currently has
tentative and conditional commitments from venture capital groups to fund the
construction of the processed equipment.
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 1999 decreased $22,475 or 7% when
compared to the same quarter in the prior year. The decrease in net sales was
due primarily to the decline in the sales from the U.S. Air Force contract.
The U.S. Air Force Mil. Spec. MIL-C-87937C, Type II to which the Company is
qualified is being phased out and replaced with MIL-PRF-87937C, Type IV, a
product that qualifies to a more rigid cleaning efficiency test. The Company
has developed a product that qualifies to MIL-PRF-87937C, Type IV and
currently has submitted quotations to the furnish the government with a Type
IV aircraft cleaning compound.
During the current quarter, sales from the Company's firefighting foam
concentrate product line increased $31,196 or 60% when compared to the same
period in the prior year. This increase was due to the completion of three
(3) new Underwriters Laboratories listings for the Company's firefighting
foam concentrates. With the issuance of the three (3) new U.L. listings, the
Company is one of, if not the only, firefighting foam concentrate
manufacturer to offer a complete line of products that are both
non-reportable and environmentally responsible. Increased sales from this
division were generated from additional sales to existing customers, as well
as by sales to new clients, without having to offer discounted prices.
Cost of sales for the three months ended decreased $7,388 or 4% when compared
to the same period in Fiscal 1998. As percentage of sales, cost of sales
increased from 66% to 69%.
The increase in cost of sales as a percentage of sales was attributable to
the decrease in the Company's net sales for the three months ended. Decreased
sales caused underutilization of the Company's plant capacity while factory
overhead costs remained relatively constant.
Operating expenses for the first quarter of Fiscal 1999 decreased $165,450 or
40% compared to the same quarter of Fiscal 1998. This decrease was due
primarily to the Company's reduction in its sales force and the elimination
of third party consulting services.
The balance of the decrease in operating expenses was due to the reduction in
research and development costs associated with the Base Fluid Destruction
process in South America, from $104,575 to $58,659.
Interest income was $809 for the three months ended, a decrease of $1,609
when compared with the same period in the prior year. This resulted from a
decrease in investment cash.
Interest expense was $1,931 for the current quarter as compared to $2,628
for the same period in the prior year. This decrease is due to a reduction of
debt incurred to finance equipment purchases.
LIQUIDITY AND CAPITAL RESOURCES
The Company considers cash and cash equivalents as its principal measure of
liquidity. These items total $7,483 at November 30, 1998. The Company's
primary cash requirements are for operating expenses, particularly Research
and Development expenses, raw material purchases and capital expenditures.
Since the Company commenced operations, it has incurred recurring losses and
negative cash flows from operations. The Company does not have sufficient
working capital available as of November 30, 1998, 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 has the option to sell 1 million
common shares at an undetermined price per share. These shares are remaining
from 2 million shares authorized for sale to accredited and sophisticated
investors by the Company's board of directors in January 1998. Another option
to raise additional capital is for members of the Company's board of
directors to exercise outstanding personal options and/or warrants. For
immediate capital requirements, the Company expects to negotiate loans from
board of director members until sufficient funds are generated from
operations or the financial instruments discussed above are implemented. The
Company negotiated one (1) $50,000 loan in November 1998 and one (1) $50,000
loan in January 1999 from members of the board of directors. The funds will
allow the Company to continue current operations through February 1999. The
Company is currently in the process of negotiating other loans from members
of the board of directors and implementing one or both financial instruments
discussed above.
The Company has successfully field tested a unique technology for
recovering barite and oil from spent drilling muds. The mud recycling
process (MRP) offers significant cost savings over current management
practices involving spent drilling muds. The market value of the
recovered barite and oils is expected to more than offset processing
costs. The Company, working on location in Colombia with M-I Drilling
Fluids, L.L.C., has successfully completed the first phase of a version
of its MRP process, Base Fluid Destruction (BFD). The alliance was able
to retrieve high purity diesel, 99.5% pure based on retorts, from spent
oil based muds. Meetings are scheduled to occur at the end of January
1999 with oil company and government officials in Venezuela to introduce
the MRP and BFD processes. Opportunities may also exist in Mexico for
the Company's drilling fluid demulsification technology. Field visits to
a SWACO mud plant in the interior of Mexico are scheduled following the
Venezuelan meetings to determine the viability of the Company's processes
for drilling mud recycling and recovery. The Company anticipates
additional business in South America following these meetings. No
estimate of revenues is possible at this stage of development because the
results of this technology have to be commercially explored.
The Company has a license agreement with Gradient Technology, Inc. ("GTI")
under which the Company has committed to fund $200,000 of research and
development costs incurred by GTI when certain conditions are met. These
conditions include the Company obtaining financing of approximately $1.25
million to construct the equipment and obtaining a commitment from a customer
to purchase the process materials. Through 11/30/98, GTI has incurred
research and development costs of $107,059, which the Company would be
obligated to reimburse GTI if the above conditions are met. In November 1998,
the Crane Division of the Naval Surface Warfare Center notified GTI and the
Company that they were awarded a two part contract for demonstrating a mobile
system capable of producing higher order commercial products from ammonium
picrate. The contract is divided into two phases. In Phase One, the Company
and GTI provided a limited sample of fully processed material. GTI will
receive $97,000 for Phase One, which is officially scheduled for completion in
the second quarter of Fiscal 1999. Phase Two is expected to generate over $1.5
million in revenue to the Company, less a 5% commission due GTI. In order for
Phase Two to commence, GTI and the Company must obtain financing to construct
the necessary full scale equipment to complete Phase Two and obtain a written
commitment from a customer to purchase the processed materials. As discussed
above, the Company is obligated to obtain the financing and customer
commitment under its agreement with GTI. Phase Two is scheduled to begin in
March 1999 and is expected to take not more than eighteen months to complete.
The Company currently has tentative and conditional commitments from venture
capital groups to fund the construction of the processed equipment.
The Company has been contracted to furnish products to a corporation,
SafeScience, Inc., that is entering the automotive and household goods
markets. In December 1998, the Company received the first of two stocking
orders from SafeScience, Inc., for entry into the consumer market. This first
order, totaling approximately $35,000, signals the organization's introduction
into the worldwide consumer market. Currently nine (9) products have been
developed for use by the consumer, with new product additions scheduled for
introduction within the next 30 days.
The Company continues to expand its industrial and institutional cleaning
market. Specifically, in October 1998, the Company signed an exclusive
agreement with Environmental Concepts, Inc. (ECI). Under terms of the
agreement, the Company will furnish cleaning chemicals for ECI's Gulf coast
marine vessel cleaning service business. Initial sales as of November 30,
1998 to ECI are approximately $10,000. Management expects product sales to
ECI will average $30,000 per month beginning in the second quarter of Fiscal
1999.
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 1999, although no
assurances can be made.
During 1998, the Company developed a plan to upgrade its primary information
systems to be Year 2000 compliant. The Company does not expect the cost of
the upgrade to be material to its financial condition or business operations.
Through November 30, 1998, the Company has not incurred significant costs
associated with the Year 2000. The Company anticipates to have the necessary
upgrades by February 1, 1999.
The Company is in the process of evaluating compliance with the Year 2000 by
its primary suppliers and customers; however the Company does not believe its
business or operations would be adversely impacted if its suppliers or
customers were not Year 2000 compliant.
The Company has no unused credit facilities at this time.
Part II
Other Information
Part II. Item 1. Legal Proceedings
not applicable
Item 2. Changes in Securities
not applicable
Item 3. Defaults Upon Senior Securities
not applicable
Item 4. Submission Of Matters To Vote Of Security Holders
Item 5. Other information
not applicable
Item 6. Exhibits And Reports On Form 8-K
a) Exhibits
not applicable
b) Reports On Form 8-K
not applicable
SIGNATURES
The financial information furnished herein has not been audited by an
independent accountant; however, in the opinion of management, all adjustments
(only consisting of normal recurring accruals) necessary for a fair
presentation of the results of operations for the three months ended November
30, 1998 have been included.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Delta-Omega Technologies, Inc.
(Registrant)
/s/ James V. Janes, III
_________________________
James V. Janes III
President
(Principal Officer)
/s/ Marian A. Bourque
__________________________
Marian A. Bourque
Chief Accounting Officer
Date: January 14, 1999