SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended February 28, 1999
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 March 31, 1999
This document is comprised of 14 pages
Delta-Omega Technologies, Inc.
Index to Quarterly Report
Part I
Financial Statements
Item 1. Financial Statements Page
Consolidated Balance Sheet as of February 28, 1999. . . . 2
Consolidated Statements of Operations, three and six months
ended February 28, 1999 and 1998. . . . . . . . . . . . 3
Statements of Cash Flows, three and six months ended
February 28, 1999 and 1998. . . . . . . . . . . . . . .. 4
Notes to consolidated financial statements . . . . . . . . 5
Item 2. Management's discussion and analysis of financial
condition and results of operations. . . . . . . . . . .. 9
Part II
Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . .. 13
Item 2. Changes in Securities . . . . . . . . . . . .. . . . . . . 13
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . 13
Item 4. Submission Of Matters To A Vote Of Security Holders . . . 13
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits And Reports on Form 8-K . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . .. . . . . 14
Part I. Item 1. Financial Statements
Delta-Omega Technologies, Inc.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
ASSETS
February 28,
1999
<S> <C>
Current Assets
Cash and equivalents $32,986
Accounts and notes receivable
Trade, net of allowance for losses 204,020
Other 4,000
Inventories 210,835
Prepaid expenses 8,617
________________
Total current assets 460,458
Property and equipment, net of accumulated depreciation 212,877
Intangible assets, net of accumulated amortization 103,639
Other assets 10,618
________________
Total assets $ 787,592
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable 244,315
Customer prepayments 32,046
Advance from Factor 57,202
Note payable - Directors 125,000
Current maturities of long-term debt and leases 17,288
Other current and accrued liabilities 14,602
_____________
Total current liabilities 490,453
Long-term debt and leases, net of current maturities 33,696
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 (11,341,806)
________________
Total shareholders' equity 263,443
________________
Total liabilities and shareholders' equity $ 787,592
================
</TABLE>
See accompanying notes to consolidated financial statements.
Delta-Omega Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
February 28, February 28,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales and gross revenues
Net product sales $317,307 $262,807 $616,861 $584,836
Cost of sales and revenues 208,260 193,943 414,772 407,843
__________ __________ _________ _________
Gross profit 109,047 68,864 202,089 176,993
Cost and expenses
Selling, general and
administrative 186,349 248,823 373,427 564,793
Research and development 54,007 126,903 112,666 222,120
__________ ____________ _________ ________
Operating Loss (131,309) (306,862) (284,004) (609,920)
Other operating income, net 1,029 1,785 13,838 4,203
Interest expense (2,903) (1,363) (4,834) (3,991)
___________ _____________ ___________ _______
Net loss available to common
shareholders $ (133,183) $ (306,440) $ (275,000) $ (609,708)
============ ============ =========== ==========
Weighted average shares
outstanding 14,996,589 13,295,231 14,996,589 13,262,733
============ ============ =========== ==========
Net loss per common share $ (.01) $ (.02) $ (.02) $ (.04)
============ ============ =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
Delta-Omega Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
Six Months Ended
February 28,
1999 1998
<S> <C> <C>
Net cash used in operating activities $ (302,792) $ (366,207)
Cash flows from investing activities:
Property acquisitions 0 (15,651)
Proceeds from sale of property and
equipment 15,750 0
Patent costs (2,023) (2,894)
______________ ____________
Net cash flows used in investing activities 13,727 (18,545)
Cash flows from financing activities:
Principal payments on bank notes payable (6,384) (3,854)
Capital lease financing and other notes (4,441) (4,007)
Proceeds from borrowing 207,202 30,000
Repayments of borrowings (25,000) 0
______________ ___________
Net cash flows provided by (used in)
financing activities 171,377 22,139
Net increase (decrease) in cash
and equivalents (117,688) (362,613)
Cash and equivalents, beginning of period 150,674 346,574
_______________ ___________
Cash and equivalents, end of period $ 32,986 $ (16,039)
=============== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Delta-Omega Technologies, Inc.
Notes to Consolidated Financial Statements
February 28, 1999
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 February 28, 1999, 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.
As an additional option for raising capital, the Company's board of directors
authorized management to negotiate with a major customer a two year loan in
order to maintain current operations and meet projected product delivery
schedules. For immediate capital requirements, the Company entered into an
agreement in February 1999 to factor submitted accounts receivable for an
average net fee of 5% of the invoice amount. The Company also expects to
continue negotiating loans from board of director members. Between November
1998 and February 1999, the Company negotiated five loans totaling $125,000
from members of the board of directors. Funds generated by the factored
accounts receivable together with proceeds from he board of director loans
allowed the Company to maintain operations through March 1999. The Company is
currently in the process of implementing one or more financial instruments
discussed above for continued operations.
Note B: Related party transactions
During the first quarter of Fiscal 1999, the Company negotiated two (2)
$25,000 promissory notes 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 first promissory
note were paid in the first quarter of the current period. The principal and
interest of the second promissory note are payable in full on January 30,
1999. The Company re-negotiated the terms of the second promissory note to
extend the maturity date to April 30, 1999.
During the second quarter of Fiscal 1999, the Company negotiated three
additional promissory notes totaling $100,000 from members of the board of
directors to maintain its current level of operations. Each promissory note
bears an interest rate of 8.25% compounded annually and are payable at the end
of 90 days from the date of the promissory note.
The Company expects to repay the board of directors loans with either
funds generated from continuing operations or proceeds from the sale of common
stock previously authorized by the board of dircetors; or the dircetors may
elect to convert the debt into equity.
Note C: Accounts Receivable
In February 1999, the Company entered into a factoring agreement with
Texas Capital Funding, Inc. ("TCF"). The Company agrees to sell, assign,
transfer, convey and deliver submitted accounts receivable to TCF and TCF
hereby purchases and accepts delivery from the Company. TCF agrees 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 on the collection period
of each submitted invoice. Based upon the collection history of submitted
accounts receivable, fees incurred will average between 3% and 20% of the
invoice amount. Fees incurred are classified as interest expense and reflected
in the consolidated statements of operations. Interest expense related to the
factoring of accounts receivable in the current quarter was not material for
disclosure.
Accounts and Notes Receivable at the end of February 28, 1999 consists
of the following:
<TABLE>
<S> <C>
Accounts Receivable, Trade $142,530
Accounts Receivable, Factored 71,490
Allowance for Doubtful Accounts (10,000)
Other 4,000
_______________
Total $208,020
===============
</TABLE>
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 license agreement with
GTI currently is the subject of arbitration. Matters to be addressed in
arbitration center around the amount of capital required to fulfill a U.S.
Naval Surface Warfare Center contract and the timing of fund raising. The
Company has filed its arbitration claims in the matter with the American
Arbitration Association. GTI has filed its arbitration claims also, and both
parties are awaiting a date to be scheduled. The arbitration will be conducted
in Denver, Colorado.
Note E: Shareholders' Equity
In February 1999, the Company's board of directors authorized that the
expiration date for 7,500 options granted as part of an employment agreement
and another agreement for 103,667 options granted for compensation in lieu of
cash for services rendered be extended for three years from the original
expiration date. There was no compensation expense recorded upon extension
of these options because exercise prices exceeded the market price of the
Company's common shares on measurement date.
The board of directors also authorized the issuance of options for
consulting services rendered during the Underwriter Laboratories'
fire foam product tests. The options were issued in accordance with the terms
of an agreement the Company entered into and allow the holder to acquire
25,000 shares of common stock at an option price of $2.00 per share. The
Company recognized an expense of $6,000, an amount equal to the fair value
of the consulting services rendered during the testing period. These costs
are reflected in research and development expenses in the consolidated
statements of operations.
In April 1999, the Company's board of directors authorized extending the
expiration date of the Preferred "B" stock for an additional two (2) years
from June 30, 1999, the original expiration date. The Company is currently in
the process of preparing the necessary documentation to implement the
extension.
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 second quarter of Fiscal 1999 increased $54,500 or 21%
when compared to the same quarter in the prior year. The increase in net
sales was due primarily to an increase in demand for an aircraft cleaning
compound procured by the U.S. Air Force. Also, sales to commercial airlines
and aviation support companies accounted for a significant share of the net
increase.
Sales generated from the Company's firefighting foam concentrate product
line increased $9,500 or 14% when compared to the same period in the prior
year. Increased sales from this division were directly related to the three
(3) new Underwriter Laboratories ("U.L.") listings obtained by the Company.
The U.L. listings of the Company's firefighting foam concentrates enable it to
offer a complete line of products that are both non-reportable and
environmentally responsible.
Cost of sales for the three months ended increased $14,317 or 7% when
compared to the same period in Fiscal 1998. As percentage of sales, cost of
sales decreased from 74% to 63%.
The decrease in cost of sales as a percentage of sales was directly
attributable to the increase in the Company's net sales for the three months
ended. The increase in sales resulted in increased production volumes while
factory overhead costs remained relatively constant.
Operating expenses for the first quarter of Fiscal 1999 decreased
$141,370 or 38% compared to the same quarter of Fiscal 1998. This decrease
was due primarily to the Company's reduction in research and development costs
associated with the Base Fluid Destruction process in South America, fire foam
product testing and the demilitarization project.
The balance of the decrease in operating expenses was due to the
Company's reduction in its sales force and the elimination of third party
consulting services.
Interest income was $810 for the three months ended, a decrease of $2,842
when compared with the same period in the prior year. This resulted from a
decrease in investment cash.
Interest expense was $2,903 for the current quarter as compared to $1,363
for the same period in the prior year. This increase is primarily due to
interest accrued from the delinquency in paying trade accounts payable and the
interest incurred from the notes payable to the board of directors.
LIQUIDITY AND CAPITAL RESOURCES
The Company considers cash and cash equivalents as its principal measure
of liquidity. These items total $32,986 at February 28, 1999. The Company's
primary cash requirements are for operating expenses, particularly Research
and Development expenses, raw material purchases and capital expenditures.
Since the Company commenced operations, it has incurred recurring losses and
negative cash flows from operations. The Company does not have sufficient
working capital available as of February 28, 1999, 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.
As an additional option for raising capital, the Company's board of directors
authorized management to negotiate with a major customer a two year loan in
order to maintain current operations and meet projected product delivery
schedules. For immediate capital requirements, the Company entered into an
agreement in February 1999 to factor submitted accounts receivable for an
average net fee of 5% of the invoice amount. The Company also expects to
continue negotiating loans from board of directors members if needed. Between
November 1998 and February 1999, the Company negotiated five loans totaling
$125,000 from members of the board of directors. Funds generated by the
factored accounts receivable together with proceeds from board of directors
loans will allow the Company to maintain operations through March 1999. The
Company is currently in the process of implementing one or more financial
instruments discussed above for continued operations.
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 held in
Colombia and Venezuela in January 1999 confirmed the interest of our major
oilfield service company associates. Conditions prevalent in the oil and gas
industry have caused delays in the implementation of advanced management
practices involving spent drilling muds. 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 determined.
The Company has a license agreement with Gradient Technology, Inc.
("GTI") that is the subject of arbitration. In December 1997, the Company
signed a license agreement with GTI for the development and construction of a
mobile system capable of producing higher order commercial products from
ammonium picrate, a form of explosive. btaining a commitment from a customer
to purchase the process materials. The Company was obligated to obtain
financing and customer commitments from any processed materials. Matters to be
addressed in arbitration center around the amount of capital required to
fulfill a U.S. Naval Surface Warfare Center contract and the timing of fund
raising. The Company has filed its arbitration claims in the matter with the
American Arbitration Association. GTI has filed its arbitration claims, also
and both parties are awaiting a date to be scheduled. The arbitration will be
conducted in Denver, Colorado.
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 ten (10) products have been
developed for use by the consumer, with new product additions scheduled for
introduction within the next quarter. SafeScience, Inc. procured a high-speed
bottling unit and had ir assembled inside the Company's warehousing facility.
Nine (9) truckloads of consumer product sized bottles, individual product
labels and advertising literature have been shipped to the Company's facility
and full production runs are scheduled to begin in April 1999.
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 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 February 28, 1999, the Company has not incurred
significant costs associated with the Year 2000. The Company anticipates to
have the necessary upgrades by February 1, 1999. Due to financial conditions
of the Company, costs to upgrade existing equipment have necessitated
postponement of the planned implementation of the Year 2000 upgrade.
Management believes that prospective business will materialize in time for
upgrading its primary information systems by the end of the fourth quarter.
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 February
28, 1999 have been included.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Delta-Omega Technologies, Inc.
(Registrant)
/s/ James V. Janes, III
___________________________________
James V. Janes III
President
(Principal Officer)
/s/ Marian A. Bourque
____________________________________
Marian A. Bourque
Chief Accounting Officer
Date: April 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> FEB-28-1999
<CASH> 32,986
<SECURITIES> 0
<RECEIVABLES> 218,020
<ALLOWANCES> (10,000)
<INVENTORY> 210,835
<CURRENT-ASSETS> 460,458
<PP&E> 616,209
<DEPRECIATION> (403,332)
<TOTAL-ASSETS> 787,592
<CURRENT-LIABILITIES> 490,453
<BONDS> 33,696
0
3,732
<COMMON> 14,996
<OTHER-SE> 244,715
<TOTAL-LIABILITY-AND-EQUITY> 787,592
<SALES> 317,307
<TOTAL-REVENUES> 317,307
<CGS> 208,260
<TOTAL-COSTS> 208,260
<OTHER-EXPENSES> 240,356
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,903
<INCOME-PRETAX> (133,183)
<INCOME-TAX> 0
<INCOME-CONTINUING> (133,183)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (133,183)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
