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, 1997
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:...12,760,320 shares of common
stock as of June 30, 1997
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 May 31, 1997. . . . . . 2
Consolidated Statements of Operations, three and nine
months ended May 31, 1997 and 1996. . . . . . . . . 3
Statements of Cash Flows, nine months ended May 31, 1997
and 1996. . . . . . . . . . . . . . . . . . . . . . 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. . . . . . . . . . . . . . . . . . . 8
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . 8
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . 8
Item 4. Submission Of Matters To A Vote Of Security Holders . . 8
Item 5. Other Information. . . . . . . . . . . . . . . . . . . 8
Item 6. Exhibits And Reports on Form 8-K . . . . . . . . . . . 8
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Part I. Item 1. Financial Statements
Delta-Omega Technologies, Inc.
Consolidated Balance Sheet
(Unaudited)
ASSETS
May 31,
1997
Current Assets
Cash and equivalents $ 731,254
Accounts and notes receivable
Trade, net of allowance for losses 127,105
Trade, related parties 104
Other 46,358
Inventories 214,306
Prepaid expenses 20,284
___________
Total current assets 1,139,411
Property and equipment, net of accumulated depreciation 441,212
Intangible assets, net of accumulated amortization 125,665
Other assets 11,007
___________
Total assets $ 1,717,295
___________
___________
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable 210,748
Current maturities of long-term debt and leases 31,862
Other current and accrued liabilities 18,141
___________
Total current liabilities 260,751
Long-term debt and leases, net of current maturities 44,937
Shareholders' equity:
Convertible, 7 percent cumulative, non-participating
preferred stock, $.001 par value, shares authorized,
40,000,000; issued and outstanding 1,595,000 series B,
2,471,667 series C 4,062
Common stock, $.001 par value, shares authorized,
100,000,000; issued and outstanding 12,760,320 12,765
Additional paid-in capital 10,324,060
Retained deficit (8,929,280)
___________
Total shareholders' equity 1,411,607
___________
Total liabilities and shareholders' equity $ 1,717,295
___________
___________
See accompanying notes to consolidated financial statements.
Delta-Omega Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
May 31, May 31,
1997 1996 1997 1996
Net sales and gross revenues
Net product sales $ 324,468 $ 249,642 $ 923,553 $ 546,406
Cost of sales and revenues 237,452 175,368 681,354 364,921
__________ __________ __________ __________
Gross profit 87,016 74,274 242,199 181,485
Cost and expenses
Selling, general and
administrative 361,761 241,449 909,036 946,229
Research and development 75,730 5,893 173,041 51,118
__________ __________ __________ __________
Operating Loss (350,475) (173,068) (839,878) (815,862)
Other income, net 11,083 227 27,764 8,776
Interest expense (2,119) (1,984) (5,198) (4,616)
__________ __________ __________ __________
Net loss available to common
shareholders $ (341,511) $ (174,825) $ (817,312) $ (811,702)
__________ __________ __________ __________
__________ __________ __________ __________
Weighted average shares
outstanding 12,763,187 12,546,807 12,750,127 12,468,585
__________ __________ __________ __________
__________ __________ __________ __________
Net loss per common share $ (.02) $ (.01) $ (.06) $ (.07)
__________ __________ __________ __________
__________ __________ __________ __________
See accompanying notes to consolidated financial statements.
Delta-Omega Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
May 31,
1997 1996
Net cash used in operating activities $ (745,697) $ (726,704)
Cash flows from investing activities:
Property acquisitions (59,904) 5,674
Patent costs (15,427) (4,844)
Proceeds from sale of property and
equipment 800 0
Deposits 0 480
_________ __________
Net cash flows used in investing activities (74,531) 1,310
Cash flows from financing activities:
Proceeds from borrowing 25,836 42,500
Proceeds from issuance of stock 0 122,500
Principal payments on notes payable (6,423) 6,466
Capital lease financing (4,083) (20,078)
_________ __________
Net cash flows provided by (used in)
financing activities 15,330 151,388
Net increase (decrease) in cash and
equivalents (804,899) (574,006)
Cash and equivalents, beginning of period 1,536,152 588,418
_________ __________
Cash and equivalents, end of period $ 731,254 $ 14,412
_________ __________
_________ __________
See accompanying notes to consolidated financial statements.
Delta-Omega Technologies, Inc.
Notes to Consolidated Financial Statements
May 31, 1997
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, 1996 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, 1997.
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.
Note B: Shareholders'equity
The Company entered into four agreements to issue stock options in lieu of
cash for technical and marketing services rendered for the period May 1, 1996
through January 31, 1997 and in accordance with the terms of certain
employment agreements. As per these agreements, on March 10, 1997 the
Company issued 32,330 stock options with exercise prices ranging from $.75 to
$1.00 per share. The Company entered into another agreement granting stock
options in lieu of cash for consulting services rendered in accordance with
the terms of a settlement agreement. As per this agreement, on April 10,
1997, the Company issued 66,667 options with an exercise price of $.65 per
share. In connection with this grant, one director agreed to cancel a total
of 33,333 options with an exercise price of 2.00 per share previously granted
to him. There was no compensation expense recorded upon issuance of these
options because the exercise price exceeded the market price of the Company's
common shares on the measurement date. Therefore, since there was no
compensation expense associated with these options, the Company properly
provided no accounting recognition. The Company will continue to use stock
option arrangements when possible to conserve its cash.
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
For the three and nine months ended May 31, 1997, revenues totaled $324,468
and $923,553 respectively as compared to $249,642 and $546,406 for the same
periods in 1996. The increase in revenue was due primarily to the sales
generated from the U.S. Air Force contract to furnish a military aircraft
cleaning compound and a contract to supply chemical cleaning products to a
large specialized waste handling and container cleaning company that serves
the oil industry in the Gulf Coast region. Through May 31, 1997, the U.S. Air
Force contract generated sales of approximately $350,000. The supply
contract for the waste handling and container cleaning company generates
average monthly sales of approximately $50,000.
Gross margins as a percent of revenue for the nine months ended decreased due
to a higher percentage of the Company's total sales being derived from markets
that are more competitive and yield lower margins. If sales volumes continue
to improve, management expects that average unit cost will decrease, thereby
improving gross margins in future.
For the three and nine months ended May 31, 1997, selling, general and
administrative expenses totaled $361,761 and $909,036 respectively as compared
to $241,449 and $946,229 for the same periods in 1996. Selling, general and
administrative expenses for the current period increased due primarily to
consulting fees and recruitment services incurred, the addition of a Vice
President of Sales and Marketing and increased travel expenses.
Research and Development expenses for the current period totaled $75,730 and
$173,041 respectively as compared to $5,893 and $51,118 for the same periods
in fiscal 1996. The increase in Research and Development expenses was due
primarily to the addition of laboratory personnel and expenses incurred during
the demonstration of a new technology for recovering barite and oil
from spent drilling muds.
Increased operating expenses resulted in net losses available to common
shareholders of $341,511 and $817,312 respectively as compared to the losses
of $174,825 and $811,702 for the same periods in 1996.
Other income consisting primarily of interest income was $27,764 for the nine
months, an increase of $18,988 when compared with the same period in the prior
year. This resulted from an increase in investment cash.
Interest expense was $5,198 for the nine months as compared to $4,616 for the
same period in the prior year. This increase is due to debt incurred to
finance equipment purchases.
LIQUIDITY AND CAPITAL RESOURCES
Operating cash at May 31, 1997 was $731,254. Net cash used by operating
activities through the third quarter of fiscal year 1997 was $745,697 as
compared to $726,704 through the third quarter of fiscal year 1996. This
increase is due primarily to increased operating expenses.
The Company enhanced its liquidity in the third and fourth quarter of fiscal
year 1996 by completing a private offering of Series C Preferred Stock solely
to accredited investors and raised approximately $1.8 million. Commencing in
June 1996 as amended in August 1996, the Company offered Units of 2,471,667
Shares of Series C Preferred Stock and Class Z Warrants at an offering price
of $.75 per Unit, with a minimum investment of 25,000 Units, or $18,750. The
Company paid ten percent (10%) concessions to certain broker/dealers who
consummated sales of the Units. The proceeds from this offering were used to
fund the recurring losses and negative cash flows until the Company is able to
generate sufficient sales to become profitable. A portion of the proceeds
were used to expand the Company's technical capabilities, with the addition of
advance degreed R & D personnel, and improve the Company's sales effort, with
the addition of a Vice President of Sales & Marketing.
The Company continues to supply the United States Air Force with DOT 111/113TM
to be utilized for cleaning military aircraft and aerospace ground equipment.
The one-year contract extension has the potential to generate approximately
$600,000 annually. The Company was notified in April, 1997 that the contract
option was exercised for the twelve month period beginning June 1, 1997.
As previously reported, the Company has successfully demonstrated a new
technology for recovering barite and oil from spent drilling muds. A modified
version of the "MRP" process has now been developed for commercial
applications. The Company has teamed with a major U.S. based drilling mud
company to perform a full scale application in Latin America. The field
application will be completed by the end of August, 1997.
Management believes, although no assurances can be made, that sales will
continue to increase and cash flows from operations will improve in fiscal
year 1997. Mr. David "Andy" Gordon assumed the position of Vice President of
Sales and Marketing on May 5, 1997. His background in marketing and sales of
specialty chemicals for various market places including oilfield,
institutional and industrial has and should continue to enhance the Company's
market focus.
Notwithstanding the anticipated increased cash flow from operations, there can
be no assurance that additional cash won't be needed if net losses aren't
reduced or eliminated in the near term. Historically, the Company has relied
on proceeds of private placements and loans from directors and shareholders to
fund operations. The Company has developed contingency plans to issue another
private placement if its cash reserves fall below $200,000 and for short term
loans from directors as an interim solution pending receipt of private
placement proceeds.
Management believes that its current cash position, its access to private
placement proceeds and director loans will allow it to meet cash needs for at
least the next 12 months.
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
The Company's annual shareholders' meeting for shareholders of record as
of close of business on March 7, 1997 was held on April 16, 1997 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 were reported as
the final totals for the proposals voted upon.
Proposal #1: Election of Directors
For Withheld
L.G. Schafran 10,358,537 7,500
Richard Brown 10,359,537 6,500
Donald Carlin 10,334,537 31,500
James V. Janes, III 10,357,137 8,900
David Peipers 10,359,537 6,500
Result: Schafran, Brown, Carlin, Janes and Peipers elected.
Proposal #2: To ratify the appointment of the auditing firm of Arthur
Andersen & Company.
For: 10,363,477
Against: 1,200
Abstain: 1,360
Not Voted: -0-
Result: Proposal passed.
Total voted shares represented by proxy: 10,366,037
Percentage of the outstanding voting shares: 61.60%
Outstanding voting shares: 16,826,987
No other business was brought before the meeting for consideration.
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 and nine months
ended May 31, 1997 and 1996 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 10, 1997
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 731,254
<SECURITIES> 0
<RECEIVABLES> 174,167
<ALLOWANCES> (60,000)
<INVENTORY> 214,306
<CURRENT-ASSETS> 1,139,411
<PP&E> 934,327
<DEPRECIATION> (493,115)
<TOTAL-ASSETS> 1,717,295
<CURRENT-LIABILITIES> 260,751
<BONDS> 0
0
4,062
<COMMON> 12,765
<OTHER-SE> 1,394,780
<TOTAL-LIABILITY-AND-EQUITY> 1,717,295
<SALES> 324,468
<TOTAL-REVENUES> 324,468
<CGS> 237,452
<TOTAL-COSTS> 237,452
<OTHER-EXPENSES> 437,491
<LOSS-PROVISION> (350,475)
<INTEREST-EXPENSE> 2,119
<INCOME-PRETAX> (341,511)
<INCOME-TAX> 0
<INCOME-CONTINUING> (341,511)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (341,511)
<EPS-PRIMARY> (.02)
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