UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended August 31, 2000
Commission File No. 0-24506
DELTA-OMEGA TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Colorado 84-1100774
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
119 Ida Road
Broussard, Louisiana 70518
(Address of principal executive offices) (Zip code)
(337) 837-3011
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
$.001 par value common stock
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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 ____
Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of the Company's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-KSB or any amendments to the Form 10-KSB. [X]
Company's revenues for its most recent fiscal year. $1,303,335
As of September 30, 2000, 18,747,210 shares of common stock, $.001 par value,
were outstanding, and the aggregate market value of the common stock held by
non-affiliates of Delta-Omega Technologies, Inc. was approximately $2,040,079 on
that date.
Documents incorporated by reference:
The definitive proxy statement for the annual meeting of shareholders which will
be filed with the Commission within 120 days after the close of the fiscal year
is incorporated by reference into Part III.
Please see item 13 for the exhibit index.
<PAGE>
PART I.
Item 1. Business
----------------
GENERAL
-------
Delta-Omega Technologies, Inc. (Delta-Omega) was organized under the laws of the
state of Colorado on December 22, 1988 as Barclay's West, Inc. In November 1989,
the Company acquired, via a share exchange agreement, all of the outstanding
securities of Delta-Omega Technologies, Ltd. and on December 22, 1989, changed
its name from Barclay's West, Inc. to Delta-Omega Technologies, Inc. to reflect
the acquisition.
Prior to fiscal 1993, Delta-Omega was a development stage company whose main
objective was to conduct research and development commencing in fiscal 1993. The
Company had essentially completed a majority of the research, development and
testing of its primary products and commenced its marketing efforts. The Company
continues to incur research and development costs to further develop its primary
products into different markets.
SPECIALTY CHEMICALS
-------------------
Delta-Omega Technologies, Ltd. is engaged in the development, manufacture and
marketing of environmentally safe specialty chemicals for use in a variety of
consumer, industrial and military applications. These products are deemed to be
environmentally safe because they are water-based, non-toxic and biodegradable.
These products replace hazardous, flammable, toxic and ozone depleting chemicals
in a broad range of cleaning and emergency response applications. Delta-Omega is
developing proprietary products and processes that address large markets where
there is limited environmentally safe competition or few or no existing products
that provide effective performance.
SafeScience
-----------
On September 1, 1999, the Company and SafeScience entered into an exclusive
License Agreement concerning certain proprietary formulations developed by
the Company and produced exclusively for SafeScience. Terms of the License
Agreement provide for SafeScience to provide confidential access to these
formulations to third party manufacturers for the purpose of manufacturing
large volumes of finished goods for resale. This arrangement allows
SafeSciecne to outsource much greater product blending capacities than the
Company can provide with its existing facilities. A provision of the
License Agreement grants a royalty to the Company based upon net sales of
SafeScience products. Through this channel, the Company has developed a
consumer market for All Purpose, Bathroom, Floor, and Window Cleaners and a
dish washing liquid.
The SafeScience mission is to "Make Chemical Safety a Lifestyle Choice." To
achieve this goal, SafeScience leverages technology to comprehensively
address the issue of health and chemical safety, with safe and efficacious
commercial and consumer products. SafeScience commercial are the first
cleaning products that combine high performance with chemical safety, at
competitive prices.
SafeScience cleaners offer effective, non-hazardous alternatives to
petroleum-distillate based, chlorinated, caustic and high-VOC content
products. Products benefits include non-hazardous for worker and client
safety, environmentally benign and biodegradable, non-flammable, generate
less wastewater and require no special disposal procedures.
1
<PAGE>
Oilfield Products
-----------------
The Company recently introduced a line of products to serve the needs of
the oil, gas exploration and production industries. This line of products
includes degreasers, paraffin cutters, downhole tubing and casing cleaners
and marine transportation storage vessel cleaning compounds. The
multi-functional properties of these products allow the customer greater
flexibility by reducing cleaning time, minimizing storage requirements,
enhancing worker safety and lessening environmental liabilities.
Solvent Replacement Products
----------------------------
DOT 111/113(TM) is a water-based, non-toxic, biodegradable, patented
cleaning solution for use on metal and other hard surfaces. The product can
replace chlorinated solvents scheduled for elimination under the U.S. Clean
Air Act and other environmentally objectionable cleaning solvents in
specific cleaning applications. It is used to remove hydrocarbon and other
organic residue as well as inorganic material from surfaces and is
non-corrosive to a wide array of metals, plastics, rubber and other
materials. DOT 111/113(TM) conforms to the requirements of MIL-PRF-87937C,
Type II which establishes the requirements for environmentally safe
cleaning for aircraft and aerospace equipment for the U.S. Air Force. It
conforms to NASA test protocol for use in cleaning liquid oxygen systems
and is accepted by the U.S. Navy as a pre-cleaner for oxygen systems. It is
also used to clean outer surfaces of aircraft and bare metal prior to
painting among many other general uses.
ATTAR(TM) is a series of water-based products designed to address the needs
of the metalworking and the aviation industries for a heavy-duty,
biodegradable, environmentally safe cleaner/degreaser. This product is
designed to complement the light to medium duty cleaner, DOT 111/113(TM),
and is designed to be a safe alternative to ozone-depleting chemicals and
flammable, hazardous solvents used to remove heavy baked-on oils, synthetic
lubricants and carbon deposits. The product is non-corrosive to a wide
variety of metals, metal alloys, painted surfaces, plastics and other
similar materials. The base formulation is highly versatile and can be
modified to meet specific cleaning requirements.
Omni-Clean(TM)Renew is a product developed for cleaning concrete and marble
monuments, statues and building edifices. Omni-Clean(TM)Renew works like
the petroleum based or acid based products that it is designed to replace,
but is safe for use by cleaning personnel and is biodegradable. Early
indications from customers in the cemetery maintenance business are
positive and the Company expects this niche market to develop with more
exposure to this specialized cleaning segment. No revenue estimates are
possible at this stage of initial introduction.
Institutional and Industrial Products
-------------------------------------
Omni-Clean(TM)SD is a multi-use product that is water-based, non-toxic and
biodegradable and designed to address the specific needs of the
institutional and industrial markets. It creates no adverse health effects
for users. Its uses include cleaning pots and pans, floors, laundry as well
as general purpose cleaning. Omni-Clean(TM)SD can reduce chemical use
hazards (including associated liability) and increase safety and efficiency
while reducing costs. This product has been USDA accepted for certain uses
and is presently being sold to hotels, restaurants, fast food chains,
laundry services, oilfield and janitorial service companies.
2
<PAGE>
Omni-Clean(TM)SD is also used by the barge and tank industry to clean
various residuals from storage vessels. It significantly reduces the amount
of washwater used in the cleaning process. Its unique cleaning properties
displace the contaminant from the vessel wall and phase separate them
allowing the waste to be skimmed from the surface and the product to be
reused. This product has no constituents reportable under federal
guidelines.
DOT Degreaser was developed to compete with low-end oilfield cleaners and
degreasers. DOT Degreaser contains no reportable quantities of regulated
chemicals and does not produce oily residues that dissolve into water,
creating potential discharge problems. It is biodegradable, non-flammable
and has a high tolerance for metals usually found in oilfield production
water. It is clean-rinsing and is not harmful to personnel or equipment
(painted or unpainted). DOT Degreaser can be applied in a broad spectrum of
oilfield and maritime uses, including removal of API modified pipe dope
used in drilling operations.
Firefighting and Spill Response
-------------------------------
Vulcan(TM) is a foam concentrate product line used to combat flammable
liquid and petroleum fires. These products are non-toxic and non-corrosive
and are successful in mitigating the threat of fire and explosion while
introducing no new contaminants to the local environment. This is
accomplished through the formation of a lasting, stable, heat resistant
foam blanket which excludes oxygen from the burning flammable liquids. The
products have a low surface tension, which allows them to penetrate into
cracks and crevices and cling to surfaces, forming a thick foam blanket on
vertical, curved and horizontal surfaces. These products can be used
effectively on petroleum, alcohol, and other flammable liquid fires. Many,
if not all, of the commercially available firefighting foams dissolve
significant amounts of hydrocarbons into water, thereby enhancing the
spread of contaminants into the local environment, which must then be
remediated at significant costs. Vulcan(TM) foams encapsulate hydrocarbons
thus preventing their spread. Most of the fire fighting foams currently
used today contain chemicals which are reportable under federal guidelines,
while the Vulcan(TM) products do not. Two (2) Vulcan(TM) firefighting foam
concentrates earned Underwriters Laboratories (UL) listings in December of
1995. In May of 1998, the Company earned UL listings for six (6) more
products in the Vulcan(TM) line. With the issuance of the new listings, the
Company now offers a complete selection of firefighting foam concentrates
to the emergency response community.
HazClean(TM)-ER is a patented formulation listed on the U.S. Environmental
Protection Agency's National Contingency Plan. It is accepted for use by
the Louisiana Department of Environmental Quality in responding to
hydrocarbon spills and contamination. The product mixes with hydrocarbons
when applied with water and suppresses dangerous vapors thus mitigating the
threat of fire and explosion. HazClean(TM)-ER enhances the bioremediation
of contacted hydrocarbon contaminants; which is generally the most cost
effective remediation practice for the low levels of hydrocarbons typically
encountered in post spill scenarios. The use of emergency response agents
such as HazClean(TM)-ER introduce no new contamination while promoting the
natural biological decay of hydrocarbons which lowers cleanup costs.
Soil Remediation Chemicals
--------------------------
CreoSolv(TM) is a product designed to remove polynuclear aromatic
hydrocarbons (like creosote) and other similar hydrocarbons from most
surfaces, especially soil, and is used in conjunction with a mechanical
3
<PAGE>
soil washing process. The CreoSolv(TM) solution is mixed with the
contaminated soil which solubilizes the contaminant into the liquid
solution. The liquid is separated from the soil and the contaminant is
recovered from the liquid solution by chemical and physical means for
disposal or in some cases recycling. The cleaned soil can be returned to
the site.
HazClean(TM)-SR can be used in conjunction with a mechanical soil washing
process or in land farming techniques. Currently, efforts to remediate
hydrocarbon contamination from soil include, among others, removal of
polluted materials to a "less sensitive" location and/or incineration.
These methods do not always eliminate pollution permanently, may not be
cost effective and may result in undesirable side effects and potential
future liability.
HazClean(TM)-SR can be applied directly to the ground or tilled soil. The
product encapsulates the hydrocarbons thus preventing their spread. The
product contains nutrients that enhance natural biodegradation. The
Company's process is designed for remediation of hydrocarbon contamination
from soil, limestone, gravel or other materials used in parking lots,
access roads and storage yards.
SPECIAL SERVICES
----------------
The Company supplies Petroleum Chemicals, Inc. (P.C.I.), a Gulf coast oil
industry supply company, with custom blending and packaging services. A
relationship that began in fiscal year 1999 is currently generating over
$150,000 in revenues annually. Management feels that P.C.I. will continue to
expand its presence in the active drilling areas of coastal Louisiana and Texas,
resulting in increased sales.
MARKET SEGMENT DATA
-------------------
Total product sales for the year ended August 31, 2000 were $1,303,335 as
compared with total product sales for the year ended August 31, 1999 of
$1,451,754.
<TABLE>
<CAPTION>
Product Sales For the Fiscal Years Ended August, 1996 through 2000
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Solvents & Cleaners $ 407,391 $ 633,921 $ 569,085 $1,243,657 $ 738,909
Firefighting & Spill Response 398,187 385,022 279,779 203,276 106,688
Oilfield Products 196,036 254,857 328,641 9,589 1,594
SafeScience 301,721 177,954 -- -- --
---------- ---------- ---------- ---------- ----------
Total $1,303,335 $1,451,754 $1,177,505 $1,456,522 $ 847,191
========== ========== ========== ========== ==========
</TABLE>
MARKETS
-------
Specialty Chemicals
-------------------
The Company's products are marketed as safe and economical replacements for
hazardous chemicals. Industries targeted are aviation, electronics,
automotive, marine, metal fabrication, food processing, janitorial,
oilfield, barge and tank cleaning, firefighting, hazardous spill response
and soil remediation.
4
<PAGE>
The Company markets its products through regional or nationally recognized
distribution organizations, via private label arrangements and through
direct customer contact with its own sales force.
The Company prices its products competitively and, in some cases, below the
price of existing products and methods. The products are also promoted as
cost savers through the reduction of current and future environmental
liabilities and reducing, or in some cases eliminating the health hazards
to employees.
The Company's products have been gaining acceptance in markets where
governmental policy, public safety and economics are mandating changes from
presently used products and services. By gaining regulatory agency
acceptance for the use of the Company's products in specialized fields
where available products and technology are limited and sometimes costly,
the Company's products and their uses are becoming more attractive to
end-users and to distributors for sales to end-users.
SafeScience
-----------
On September 1, 1999, the Company and SafeScience entered into an exclusive
License Agreement concerning certain proprietary formulations developed by
the Company and produced exclusively for SafeScience. Under this agreement,
the Company has been contracted to furnish to SafeScience products for the
Industrial and Institutional and household goods markets. Terms of the
License Agreement provide for SafeScience to provide confidential access to
these formulations to third party manufacturers for the purpose of
manufacturing large volumes of finished goods for resale. This arrangement
allows SafeScience to outsource much greater product blending capacities
than the Company can provide with its existing facilities. A provision of
the License Agreement grants a royalty to the Company based upon net sales
of SafeScience products. Through this channel, the Company has developed a
consumer market for All Purpose, Bathroom, Floor, and Window Cleaners and a
dish washing liquid.
Oilfield Products
-----------------
The Company recently introduced a line of products to serve the needs of
the oil, gas exploration and production industries. This line of products
includes degreasers, paraffin cutters, downhole tubing and casing cleaners
and marine transportation storage vessel cleaning compounds. The
multi-functional properties of these products allow the customer greater
flexibility by reducing cleaning time, minimizing storage requirements,
enhancing worker safety and lessening environmental liabilities.
The Company furnishes specialized cleaning and treatment chemicals to
Environmental Concepts, Inc. (E.C.I.), a company that provides cleaning
equipment, products and services to the oil and gas industry. Initial sales
of the Company's products totaling approximately $100,000 have been made to
E.C.I.
Drilling Mud Recycling Process (MRP)
------------------------------------
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
5
<PAGE>
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 Upgrade (BFU). The process was able to retrieve high purity
diesel, 99.5% pure based on laboratory analysis, from spent oil based muds.
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 and
other active drilling locations. No estimate of revenues is possible at
this stage of development because long term results of this technology have
yet to be commercially determined.
Industrial and Institutional Markets
------------------------------------
The Company continues to expand its industrial and institutional cleaning
market. Specifically, the Company has entered the fleet maintenance market
and is now supplying products to Ryder-ATE, Houston Metro, Nalco Fleet
Lines and TexGas. Also the Company entered the concrete cleaning and stone
restoration markets. These products have been accepted by FMB Property
Management Company, the Texas Medical Center and several cemetery
organizations. These materials are also being evaluated by other property
management companies as well as several international organizations and
cemetery conglomerates. The Company's materials offer safe, effective
alternatives to the solvent, caustic and acid based materials currently
being utilized in the marketplace.
RAW MATERIALS
-------------
Basic raw materials used by the Company in the formulation of finished products
include a wide variety of surfactants, acids, alkalines, salts and solvents.
Approximately sixty compounds are purchased from manufacturers or distributors
that supply the chemical industry. All raw materials used by the Company are
available on a worldwide basis and are not subject to shortage. Raw materials
and finished products are typically transported via truck and rail.
BLENDING FACILITIES
-------------------
The Company's blending facilities are located in a dedicated building, housing
raw material storage and blending tanks used in the mixing process. The blending
vessels are vats where the raw materials are pumped at the proper weights to
complete a blended compound. The Company presently has three blending units with
electric motor driven paddles. The largest unit is capable of blending 1,100
gallons at one time, and the other two are 660 gallon capacity. The blending
units and associated piping are common sizes used by many industries and are
relatively inexpensive to procure, install and operate. The Company performs
100% of its product blending, and no use of outside manufacturing service is
contemplated.
MAJOR CUSTOMERS
---------------
During fiscal years 2000 and 1999, one customer, SafeScience, Inc., accounted
for twenty-four percent (24%) and sixteen (16%) percent of the Company's net
sales, respectively. In addition, Petroleum Chemicals, Inc. accounted for ten
percent (10%) of the Company's 2000 net sales and the U.S. Air Force, accounted
for twenty-four percent (24%) percent of the Company's fiscal 1999 net sales.
6
<PAGE>
GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS
-----------------------------------------
Any required government or military approvals related to principal products have
been submitted and obtained in accordance with written protocols.
PATENTS, TRADEMARKS AND LICENSES
--------------------------------
The Company owns all rights to HazClean(TM)-EFFF for which U.S. Patent No.
5,061,383 was granted in October 1991. The Company owns all rights to DOT
111/113(TM)for which U.S. Patent No. 5,308,550 was granted in May 1994.
The Company has filed two patents with the United States Patent and Trademark
Office, a base fluid upgrading (BFU) application (Serial No. 918,597) and a mud
recycling process (MRP) (Serial No. 788,993). Both patent pending applications
are for treating drilling fluids used in the oil and gas industry.
The Company is also in the process of filing two more patents, a wellbore
chemical cleaner and a continuation-in-part of co-pending MRP application Serial
No. 788,993.
There are no ongoing royalty requirements borne by the Company in the
exploitation of its patents.
The Company maintains the formulations for its various products as a trade
secret and no one has access to the formulations who is not subject to a trade
secret and non-disclosure agreement.
REGULATION
----------
Many chemicals used as solvents, cleaners and degreasers as well as firefighting
foams and spill response agents have been considered hazardous to the
environment by new federal and state guidelines. Regulations fueled by a public
awareness of the environment and the resulting political involvement are causing
most of these chemicals to be phased out.
The Company's chemical products are biodegradable, non-hazardous, and therefore,
non-reportable. Should the guidelines be amended to affect the Company's
products, Management believes the Company has the capability to substitute the
affected constituent. While this may temporarily affect the "environmentally
safe" marketing aspect of the affected product, Management does not believe it
will have any long term impact.
COMPETITION
-----------
Competition in the specialty chemical industry is provided by numerous
companies. Most of these companies have substantially greater resources and
marketing capabilities than Delta-Omega. As a result, the Company's strategy is
not to compete directly in the marketplace against these large companies, but to
do so through distributors with large established markets. Other competitive
factors include price, performance and safety in use with which the Company can
effectively compete.
7
<PAGE>
RESEARCH AND DEVELOPMENT
------------------------
During fiscal year 1999 and 2000 the Company expended $187,528 and $115,629 on
research and development expenses, respectively. The reduction principally
resulted from the Company's decision to limit additional expenses related to
oilfield products until it has concluded binding agreements with potential
customers.
In fiscal year 2000, the Company focused primarily on the development of a line
of products for SafeScience, Inc. The selection of household cleaning products
chosen by SAFS for introduction to the U.S. consumer market was identified,
products were custom formulated, performance testing was accomplished by
accepted testing labs and product safety was verified by toxicological experts.
This line of efficacious consumer products has been marketed on a regional basis
with positive results and consumer response indicates that the safe,
ready-to-use cleaners will achieve nationwide acceptance.
The Company also worked on development of an Institutional and Industrial (I&I)
product line for itself and SAFS. The heavy-duty cleaners and degreasers
designed for use by commercial industries and municipal government agencies have
attained initial success on a regional basis as evidenced by re-orders.
EMPLOYEES
---------
The Company currently has 6 full-time non-union employees at the corporate
headquarters in Broussard, Louisiana. The Company periodically retains the
services of qualified consultants relative to marketing projects, technical
support and product development.
ENVIRONMENTAL COMPLIANCE AND ENVIRONMENTAL MATTERS
--------------------------------------------------
The Company's chemical business is subject to federal and state requirements
regulating the discharge of materials into the open environment. These
regulations affect the Company's competition as well. Few of the Company's raw
materials and none of the Company's finished products are reportable under
federal or state guidelines. The cost of compliance with these regulations is
not considered material and no capital expenditures are anticipated for
compliance with regulations.
The soil washing and MRP operations, in most cases, require sub-contract
services to separate contaminants from soil or drilling mud and do not provide
for the disposal of those contaminants. The Company is therefore not exposed to
liabilities with respect to hazardous waste handling or disposal. Hazardous
waste handling is usually handled by the prime contractor.
Item 2. Properties
------------------
The Company's consolidated executive office, blending and warehouse facilities
are located at 119 Ida Road, Broussard, Louisiana 70518. The Company leases
approximately 16,000 square feet under a non-cancelable five year lease from
Crossroads Investments, L.L.C. at $6,000 per month with an option to renew for
an additional five years at an increase of $1,200 per month.
8
<PAGE>
Item 3. Legal Proceedings.
--------------------------
There is no material, pending litigation significant to the business to which
the Company is a party or against any of its Officers or Directors as a result
of their capacities with the Corporation.
Item 4. Submission of Matters to a Vote of Security Holders.
------------------------------------------------------------
No matters were submitted to a vote of security holders of the Company during
the quarter ending August 31, 2000. Annual meetings of the shareholders of the
Company are held in accordance with Colorado law.
9
<PAGE>
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters.
---------------------------------------------------------------------------
PRINCIPAL MARKET OR MARKETS
---------------------------
The Company's common stock is quoted in the "OTC Bulletin Board" maintained by
National Quotation Bureau, Inc. On September 30, 2000, there were 15 market
makers in the Company's securities and the closing bid quotation was $.110. The
following table sets forth the high and low bid quotations for the Company's
Shares, as reported in the "OTC Bulletin Board."
BID
QUARTER -----------------------
ENDED LOW HIGH
----- --- ----
August 31, 1998 $ .25 $ .51
November 30, 1998 $ .25 $ .4375
February 29, 1999 $ .18 $ .25
May 31, 1999 $ .29 $ .23
August 31, 1999 $ .24 $ .31
November 30, 1999 $ .052 $ .20
February 28, 2000 $ .08 $ .25
May 31, 2000 $ .13 $ .40
August 31, 2000 $ .11 $ .135
These quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commissions and may not represent actual transactions.
APPROXIMATE NUMBER OF HOLDERS OF THE COMPANY'S SECURITIES
---------------------------------------------------------
On September 30, 2000, there were 246 registered holders and approximately 1,100
beneficial owners of the Company's common stock held in street name at brokerage
houses. As of September 30, 2000, there were 16 holders of the Company's series
B preferred stock and 22 holders of the Company's series C preferred stock.
DIVIDENDS
---------
Holders of common stock are entitled to receive dividends declared by the
Company's Board of Directors. The Company has not yet paid any dividends on the
Company's common stock and the Board of Directors of the Company presently
intend to pursue a policy of retaining earnings, if any, for use in the
Company's operations and to finance expansion of its business.
Holders of the Company's series B preferred stock are entitled to a dividend of
$.07 per share payable in cash or the Company's common stock payable on June 30
of each year until June 30, 2001.
Holders of the Company's series C preferred stock are entitled to a dividend of
$.0525 per share payable in cash or the Company's common stock payable on June
30 of each year until June 30, 2001.
10
<PAGE>
RECENT SALES OF SECURITIES
--------------------------
During March of 1998, the Company sold 1,019,747 shares of its stock at a price
of $.75 per share raising a total of $764,810.25. The Company relied on an
exemption from registration provided by Regulation D Rule 506. No general
solicitation was made and all securities were sold to accredited, qualified
investors as restricted.
During March and April of 2000, the Company sold an additional 1,555,625
restricted shares at an average sales price of $.16 per share raising a total of
$248,900. The Company relied on an exemption from registration provided by
Regulation D Rule 506 as no general solicitation was made and sales were made
solely to accredited and sophisticated investors pursuant to the exemption.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
-------------------------------------------------------------------------------
This Annual Report on Form 10-KSB 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-KSB 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, the ability of the Company to fund
continuing operations from cash flow or funds raised through loans or equity
financings, 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
---------------------
Fiscal 2000 Compared to Fiscal 1999
-----------------------------------
Net sales decreased $148,419 or 11%, from $1,451,745 to $1,303,335. The decrease
was due primarily to a decrease in solvent replacement and cleaning product
sales relative to the U.S. Air Force contract. The U.S. Air Force contract
expired in June 1999. Since then, the Company submitted a formal bid package to
the U.S. air Force for a new three year aircraft cleaning supply contract, but
was unsuccessful in the awarding of the contract.
Net sales generated from the Company's oilfield line of products decreased to
$196,035 from $254,857 due to the expiration in fiscal 1999 of a private
labeling contract to furnish oilfield degreasers. However, during the last
quarter of fiscal 1999, the Company negotiated a private labeling contract with
Petroleum Chemicals, Inc. to furnish a line of degreasers that caters to the
oilfield. Current sales generated from this line of degreasers total over
$150,000 annually.
11
<PAGE>
Net sales of firefighting and spill response agents increased 4% to $398,187
from $385,022. The increase is sales is directly related to the introduction of
the Company's U.L. listed environmentally safe fire foam products to
distribution networks in the eastern United States.
Net sales to SafeScience, Inc. increased from $177,954 to $301,721. The increase
was due to the introduction of the products into the industrial and
institutional markets. The Company anticipates a steady increase in the amount
of revenues generated from the I&I market as SafeScience focuses on
strengthening its current position in these markets.
Cost of sales decreased $104,896 or 11%, from $1,007,964 to $903,068. The
decrease in cost of sales relates directly to the decrease in the amount of net
sales generated by the Company's products. As a percentage of sales, cost of
sales remained constant at 70%. Management expects as sales volume increase,
cost of sales as a percentage of sales will decrease as a result of raw material
bulk pricing and full capacity of the blending facility is approached.
Selling, General and Administrative expenses decreased from $866,927 to
$848,036, or 3%. Selling, General and Administrative expenses decreased due to
eliminating outside consultants and management's efforts to limit sales related
expenses.
Research and Development costs decreased from $187,528 to $115,629. In fiscal
year 2000, the Company focused its efforts and funds on the development of a
line of products for SafeScience, Inc. All chemical development costs were borne
by the Company's technical staff, therefore no outside consultants, travel or
related expenses were necessary.
Net loss for fiscal 2000 was $733,641, an increase of $87,554 from the net loss
of $646,087 incurred during fiscal 1999. The increase net loss was due primarily
to the increase in interest expense related to the factoring of Accounts
Receivable and the asset impairment of $47,974 that resulted from the write-off
of the research and development heat process equipment.
CAPITAL RESOURCES AND LIQUIDITY
-------------------------------
The Company considers cash and cash equivalents as its principal measure of
liquidity. At August 31, 2000, the Company had an overdraft cash balance of
$1,881. The Company's short term debt totals $589,772 with total debt being
$641,341. 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 did not
have sufficient working capital available as of August 31, 2000, 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 as private offering in March
2000 to raise approximately $550,000 solely to accredited and sophisticated
investors. As of September 30, 2000, the Company has received funds totaling
$248,900 related to this offering. 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. As of September 30, 2000, the Company had a cash balance of
$4,562.
12
<PAGE>
During the last three years, the Company invested funds in a unique technology
for recovering barite and oil from spent drilling mud. The Company, working on
location in Colombia with M-I Overseas Limited, successfully completed the first
phase of its oil based mud processing application. "Base Fluid Destruction"
(BFD) is a version of MRP, a proprietary process for recovering barite and oil
from spent drilling muds. BFD was demonstrated for a major oil exploration and
production company. Based upon the success of this application, the Company was
requested to expand its process to include the treatment of the water/solids
phase that remains after initial processing. Expenditures related to the BFD
project incurred to date total $414,616. The Company does not plan to expend any
more resources for this technology prior to engaging in a definitive agreement
with a potential client. No estimate of revenues is possible at this stage of
development because the results of this technology have to be commercially
explored.
The Company's current acquisition of six (6) additional UL listings for its fire
foam products gives the Company an opportunity to gain a significant market
share in the municipal fire sector and airport fire fighting markets. The
Company also developed a Class "A" foam used for extinguishing wildland and
structural fires. The Company plans to obtain approval for use in the forestry
service market.
In July 1999, the Company has been contracted to furnish products to a
corporation, SafeScience, Inc., that has entered the Industrial and
Institutional and household goods markets. The SafeScience product line
encompasses over twenty (20) products for use in both marketplaces. Since
inception (May 1998 through August 2000), net sales generated as a result of
this contract total $479,675. The Company anticipates a steady increase in the
amount of revenues generated by this contract as SafeScience, Inc. enters the
industrial market in a focused manner, while continuing to develop and expand
existing consumer product distribution accounts.
On September 1, 1999, the Company and SafeScience entered into an exclusive
License Agreement concerning certain proprietary formulations for the household
goods market developed by the Company and produced exclusively for SafeScience.
Terms of the License Agreement provide for SafeScience to provide confidential
access to these formulations to third party manufacturers for the purpose of
manufacturing large volumes of finished goods for resale. This arrangement
allows SafeScience to outsource much greater product blending capacities than
the Company can provide with its existing facilities. A provision of the License
Agreement grants a royalty to the Company based upon net sales of SafeScience
products. Royalties to date (September 1999 through August 2000) as a result of
the License Agreement total $33,880.
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 2000. As sales volumes of the
Company's fire foam product line and industrial chemicals increase, the Company
expects cash flow from operations in fiscal 2000 to improve, although no
assurances can be made.
Item 7. Financial Statements and Supplementary Data.
----------------------------------------------------
The financial statements and schedules are filed as part of this annual report
beginning on page F-1.
13
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
-----------------------------------------------------------------------
On November 8,1999, Delta-Omega Technologies, Ltd. (the "Company")engaged
Broussard, Poche, Lewis & Breaux, L.L.P. to replace Arthur Andersen LLP ("Arthur
Andersen") as the Company's independent accountants to audit the Company's
consolidated financial statements. Arthur Andersen was dismissed as the
Company's independent accountants on the same date. The Company's Board of
Directors approved the change in the Company's independent accountants.
In connection with its audits for the two most recent fiscal years ended August
31, 2000 and 1999 and through October 5, 2000, there have been no disagreements
with Broussard, Poche', Lewis & Breaux, L.L.P. on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of
Broussard, Poche' Lewis & Breaux, L.L.P., would have caused them to make
reference thereto in their report on the financial statements for the years
ended August 31, 2000 and 1999.
During the Company's two most recent fiscal years ended August 31, 2000 and 1999
and through October 5, 2000, there have been no "reportable events" (as defined
in Regulation S-K Item 304(a)(1)(v)).
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons of the
Company
---------------------------------------------------------------------------
Information concerning the Directors and Executive Officers of the Company is
hereby incorporated by reference to the Company's definitive proxy statement
which will be filed with the Commission within 120 days after the close of the
fiscal year.
Item 10. Executive Compensation
-------------------------------
Information concerning management remuneration is hereby incorporated by
reference to the Company's definitive proxy statement which will be filed with
the Commission within 120 days after the close of the fiscal year.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
------------------------------------------------------------------------
Information concerning security ownership of certain beneficial owners and
management is hereby incorporated by reference to the Company's definitive proxy
statement which will be filed with the Commission within 120 days after the
close of the fiscal year.
Item 12. Certain Relationships and Related Party Transactions
-------------------------------------------------------------
Information concerning certain relationships and related party transactions is
hereby incorporated by reference to the Company's definitive proxy statement
which will be filed with the Commission within 120 days after the close of the
fiscal year.
14
<PAGE>
PART IV
Item 13. Exhibits
-----------------
(a) The following documents are filed as part of this report:
1. Financial Statements
The consolidated financial statements filed as part of this report are
as listed in the Index to Financial Statements on page F-1 which
immediately precedes such statements.
2. Listing of Exhibits.
Exhibit
No. Description Location
--- ----------- --------
3 Articles of Incorporation Incorporated by
and Bylaws reference to Exhibit
No. 3 to the Company's
Registration Statement
(No. 0-24506)
4.1 Designation of Series B Incorporated by Reference
Convertible Preferred Stock Ex. 4.2 to Registration
Statement S-2 (no. 33-90604)
4.2 Designation of Series C Incorporated by Reference
Convertible Preferred Stock Ex. 10 to 10KSB Fiscal
Year 1999
10.0 SafeScience License Agreement Incorporated by Reference
Ex. 10 to 10KSB Fiscal
Year 1999
27.1 Financial Data Schedule Filed here with
(b) No Reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
15
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Index to Consolidated Financial Statements
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheet, August 31, 2000.............................. F-3
Consolidated Statements of Operations for the years
ended August 31, 2000 and 1999........................................... F-4
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
August 31,2000 and 1999.................................................. F-5
Consolidated Statements of Cash Flows for the years
ended August 31, 2000 and 1999........................................... F-6
Notes to Consolidated Financial Statements............................... F-7
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of Delta-Omega Technologies, Inc.:
We have audited the balance sheet of Delta-Omega Technologies, Inc. (a Colorado
corporation) and subsidiary as of August 31, 2000, and the related statements of
income, retained earnings and cash flows for the years then ended august 31,
2000 and 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Delta-Omega Technologies, Inc.
as of August 31, 2000, and the results of its operations and cash flows for the
years then ended August 31, 2000 and 1999, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has experienced recurring losses and negative
cash flows since commencement of operations. As of August 31, 2000, the Company
does not have adequate working capital in place to support its current level of
operations. These conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters are also
described in Note A. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Lafayette, Louisiana
October 5, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Consolidated Balance Sheet
ASSETS
------
August 31,
2000
------------
<S> <C>
Current assets
Accounts receivable
Trade, net of allowance for doubtful accounts $ 91,180
Accounts Receivable - factored 169,782
Employees 2,077
Inventories 136,836
Prepaid expenses 21,520
Other current assets 12,335
------------
Total current assets 433,730
Property and equipment, net of accumulated depreciation 115,688
Intangible assets, net of accumulated amortization 91,188
------------
Total assets $ 640,606
============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Bank overdraft $ 1,881
Accounts payable
Trade creditors 256,582
Others 67,526
Customer prepayments 32,046
Current maturities of long-term debt and leases 188,383
Advance from factor 185,825
Notes payable-board of director loans 401,000
Accrued expenses 35,067
------------
Total current liabilities 1,168,310
Long-term debt and leases, net of current maturities 51,958
------------
Total liabilities 1,220,268
Shareholders' equity
Convertible, 7 percent cumulative, non-participating preferred
stock, $.001 par value, shares authorized, 40,000,000; issued
and outstanding 1,295,000 series B, 2,396,667 series C 3,692
Common stock, $.001 par value, shares authorized, 100,000,000;
issued and outstanding, 17,191,585 17,191
Common stock subscribed 1,556
Additional paid-in capital 12,282,985
Retained deficit (12,885,086)
------------
Total shareholders' equity (579,662)
------------
Total liabilities and shareholders' equity $ 640,606
============
See accompanying notes to consolidated financial statements
F-3
</TABLE>
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Consolidated Statements of Operations
Years ended August 31,
----------------------------
2000 1999
------------ ------------
Net product sales $ 1,303,335 $ 1,451,754
Cost of sales 903,068 1,007,964
------------ ------------
Gross profit 400,267 443,790
Costs and expenses
Selling, general and administrative 848,036 866,927
Research and development 115,629 187,528
Impairment of Long-Lived Assets 47,974 -0-
------------ ------------
1,011,639 1,054,455
------------ ------------
Operating loss (611,372) (610,665)
Other operating income, net 34,515 14,727
Interest expense (156,784) (50,149)
------------ ------------
Net loss (733,641) (646,087)
Preferred dividend declared (219,275) (219,275)
------------ ------------
Net loss available to common shareholders $ (952,916) $ (865,362)
============ ============
Weighted average shares outstanding 16,037,966 15,150,211
Basic and diluted earnings per common share $ (.06) $ (.06)
============ ============
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Consolidated Statements of Changes in Shareholders' Equity
Common Additional
Common Preferred Stock Paid in Retained
Stock Stock Subscribed Capital Deficit
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at September 1, 1998 $ 14,996 $ 3,732 -- $ 11,580,522 $(11,066,808)
Issued dividend for Series B & C Preferred 922 -- -- 218,353 (219,275)
Issuance of stock options for services rendered -- -- -- 6,000 --
Net loss -- -- -- -- (646,087)
------------ ------------ ------------ ------------ ------------
Balance at August 31, 1999 15,918 3,732 -- 11,804,875 (11,932,170)
Issuance of common stock for private placement -- -- 1,556 247,344 --
Issued dividend for Series B & C Preferred 1,199 -- -- 218,076 (219,275)
Conversion of Convertible Preferred Stock 40 (40) -- -- --
Issuance of common stock for services rendered 34 -- -- 12,690 --
Net loss -- -- -- -- (733,641)
------------ ------------ ------------ ------------ ------------
Balance at August 31, 2000 $ 17,191 $ 3,692 $ 1,556 $ 12,282,985 $(12,885,036)
============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Consolidated Statements of Cash Flows
Years Ended August 31,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(733,641) $(646,087)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 102,845 111,204
(Gain)/Loss on sale and disposal of property & equipment (700) (13,130)
Bad debt expense -0- -0-
Issuance of common stock for services 12,724 6,000
Asset impairment 47,974 -0-
(Increase) decrease in:
Accounts receivable 86,229 (232,418)
Inventories 86,857 (13,691)
Prepaid expenses 4,075 843
Other receivables (1,519) 6,814
Other assets (1,256) 128
Increase (decrease) in:
Accounts payable (33,154) 237,513
Accrued liabilities (59) 64
--------- ---------
Other liabilities 47,530 (101,570)
--------- ---------
Total adjustments 354,584 1,757
--------- ---------
Net cash used in operating activities (379,057) (644,330)
Cash flows from investing activities:
Property acquisitions (43,223) (50,832)
Patent costs -0- (2,024)
Proceeds from sale of property and equipment 700 15,850
--------- ---------
Net cash used in investing activities (42,523) (37,006)
Cash flows from financing activities:
Bank overdraft 1,881 (63,896)
Proceeds from borrowing 260,265 470,654
Principal payments of long-term debt and capital leases (33,530) (24,857)
Proceeds from common stock offering 248,900 -0-
Proceeds from factoring (40,794) 226,619
Principal payments on related party notes (20,000) (73,000)
--------- ---------
Net cash (used in) provided by financing activities 416,722 535,520
Net increase (decrease) in cash and cash equivalents (4,858) (145,816)
--------- ---------
Cash and cash equivalents, beginning of period 4,858 150,674
--------- ---------
Cash and cash equivalents, end of period $ 0 $ 4,858
========= =========
See accompanying notes to consolidated financial statements.
F-6
</TABLE>
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Notes to Consolidated Financial Statements
August 31, 2000
Note A: Summary of Significant Accounting Policies
--------------------------------------------------
Nature of organization
----------------------
The Company is involved in developing, manufacturing and marketing
environmentally safe specialty chemicals for a variety of industrial and
military uses. These patented, patent pending or proprietary products are
deemed to be environmentally safe because they are biodegradable and
formulated without chemicals considered hazardous under federal
regulations. The Company's products replace hazardous, flammable, toxic and
ozone-depleting chemicals in a broad range of applications serving
Industrial, Institutional, Emergency Response and Soil Remediation markets.
The Company recently added a patent pending product line of downhole
chemicals for the cleaning of tubing and casing required in the drilling of
oil and natural gas wells. The Company's sales are primarily concentrated
in the southeastern United States.
Basis of presentation
---------------------
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 August 31, 2000, 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. The financial statements do not include any
adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
To obtain additional capital, the Company implemented a rights offering in
March 2000 to raise approximately $550,000 solely to accredited and
sophisticated investors. As of September 30, 2000, the Company has received
funds totaling $248,900 related to this rights offering. 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. For
immediate capital requirements, the Company expects to negotiate loans from
board of director members and major shareholders until sufficient funds are
generated from operations or the financial instruments discussed above are
implemented. As of September 30, 2000, the Company had a cash balance of
$4,562.
Management believes that the sources of funds discussed above will enable
the Company to sustain its operations and meet its obligations, although
there can be no assurance that this will be done.
Revenue recognition
-------------------
Revenue for sales of specialty chemicals is recognized when title to the
finished product has passed and billing for the product has occurred.
Inventories
-----------
Inventories consist of raw materials, finished goods and containers and are
stated at the lower of cost or market using the first-in, first-out (FIFO)
method of accounting.
Property, equipment and depreciation
------------------------------------
Property and equipment is stated at cost and depreciated using the
straight-line method over their useful lives which is 3 to 7 years for
furniture and equipment and 5 years for vehicles.
F-7
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Notes to Consolidated Financial Statements
August 31, 2000
Intangible assets and amortization
----------------------------------
The Company's policy is to amortize its licensing rights to its patented
products over a 5-year period. Patent costs are capitalized and amortized
over the life of the patent when granted. The Company periodically assesses
the recoverability of the unamortized balance based on expected future
profitability and undiscounted future cash flows related to the patents and
their contribution to overall operations of the Company.
Income taxes
------------
Income taxes are accounted for in accordance with the provisions of SFAS
No. 109 "Accounting for Income Taxes". Under this statement, deferred
income taxes are provided for by the asset and liability method.
Loss per common share
---------------------
The net loss per common share has been computed on the basis of the
weighted average number of shares outstanding during each period. Common
stock equivalents outstanding were not considered in the computation of
loss per share because their effect would be antidilutive.
Cash equivalents
----------------
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
The use of estimates
--------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Shares issued for non-cash consideration
----------------------------------------
Stock and stock options issued for services are valued at the vendor's
regular billing rates or at the value of the stock issued, whichever is
more clearly determinable at date of issuance. Stock issued for property is
valued at the fair market value of the stock issued or the fair market
value of the property, whichever is more readily determinable.
Credit concentration
--------------------
During fiscal years 2000 and 1999, one customer, SafeScience, Inc.,
accounted for twenty-four percent (24%) and sixteen (16%) percent of the
Company's net sales, respectively. In addition, Petroleum Chemicals, Inc.
accounted for ten percent (10%) of the Company's 2000 net sales and the
U.S. Air Force, accounted for twenty-four percent (24%) percent of the
Company's fiscal 1999 net sales.
Reclassifications
-----------------
Certain prior year balances have been reclassified to conform with current
year presentation.
F-8
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Notes to Consolidated Financial Statements
August 31, 2000
Accounting pronouncement
------------------------
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," SFAS
No. 129, "Disclosure of Information about Capital Structure," SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 128, which is
effective for reporting periods ending after December 15, 1997, has been
adopted by the Company and the impact on the Company's earnings per share
was not material. SFAS No. 129, SFAS No. 130 and SFAS No. 131, which are
effective for reporting periods ending after December 15, 1997, have been
adopted, and all required disclosures are presented in the Company's
consolidated financial statements included herein. However, the Company had
no comprehensive income during the year presented in these financial
statements.
Note B: Related party transactions
----------------------------------
Accrued Expenses
----------------
Accrued Expenses includes a $15,000 balance due to the Chairman of the
Board for expenses incurred during fund raising efforts in fiscal 1997. The
$15,000 balance due will be paid in the form of common shares. The number
of common shares to be issued will be calculated using the average stock
price during the time that the expenses were incurred. The expenses
incurred were reflected in the selling, general and administrative section
in the consolidated statements of operations.
Notes payable-Board of Director loans
-------------------------------------
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. Related party notes totaled $197,000 as
of August 31, 1999.
In the current fiscal year, the Company negotiated six additional short
term promissory notes totaling $224,000 with related parties. One note
totaling $15,000 bears an interest rate of 9.25% per annum and was paid in
full plus interest in the second quarter of fiscal year 2000. Three of the
six short term promissory notes totaling $50,000 each bear interest rates
of 8.25% per annum and were due on or before April 30, 2000. Any amount of
principal & interest not paid when these three notes were due will accrue
interest at the rate of 12 percent per annum until paid. Attached to each
of the these three notes is a warrant agreement granting the holder
warrants to purchase 50,000 shares of common stock at an exercise price of
$.15 per share. The two remaining 90 day promissory notes totaling $59,000
bear interest rates of 8.25% per annum.
Related party notes payable totaled $401,000 as of August 31, 2000 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.
Interest expense related to related party notes payable as of August 31,
2000 totaled $27,814.
F-9
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Notes to Consolidated Financial Statements
August 31, 2000
Note C: Accounts and notes receivable
-------------------------------------
In February 1999, the Company entered into a factoring agreement with Texas
Capital Funding, Inc. ("TCF"). The Company agreed to sell, assign,
transfer, convey and deliver submitted accounts receivable with recourse to
TCF and TCF agreed to purchase and accept delivery from the Company. TCF
agreed to transfer funds to the Company equal to 80% of the invoice amount
submitted. The remaining 20% is retained by TCF until the submitted
invoices are collected in full. Fees for the service rendered by TCF are
based upon the collection period of each submitted invoice. Based upon the
collection of submitted accounts receivable, fees incurred averaged between
3% and 20% of the invoiced amount with an average of 5% as of August 31,
2000. Fees incurred are classified as interest expense and reflected in the
consolidated statements of operations. Interest expense related to the
factoring of accounts receivable for the current fiscal year totaled
$94,219. Repayment of any advances is guaranteed by two (2) members of the
Company's board of directors.
Accounts and Notes Receivable at the end of August 31, 2000 consists of the
following:
Accounts Receivable, Trade $ 101,180
Accounts Receivable, Factored 169,782
Allowance for Doubtful Accounts (10,000)
---------
Total $ 260,962
=========
Trade receivables are shown net of an allowance for doubtful accounts of
$10,000.
Note D: Inventories
-------------------
Inventories at August 31, 2000 consisted of the following:
Raw materials $ 86,867
Finished goods 36,365
Containers 7,358
Consigned inventory 6,246
--------
Total $136,836
========
Note E: Property and equipment
------------------------------
Major classes of property and equipment at August 31, 2000 consisted of:
Furniture and equipment $ 528,522
Leasehold improvements 29,292
---------
Total property and equipment 557,814
Less: accumulated depreciation (442,126)
---------
$115,688
=========
Depreciation expense was $95,077 and $102,384 for years ended August 31,
2000 and 1999, respectively.
During fiscal year ended August 31, 2000, the Company recorded a $47,974
impairment write-down of its heating process equipment in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121. The Company
F-10
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Notes to Consolidated Financial Statements
August 31, 2000
wrote-down this piece of equipment since they appeared to have no revenue
generating potential based upon recent significant adverse changes in the
environmental consulting and remediation business. Therefore, the Company
estimated no future undiscounted cash flows from the heating process
equipment and fines treatment unit. Thus, as prescribed by SFAS 121, the
carrying value of these pieces of equipment was reduced to the estimated
discounted future cash flows which is zero.
The charge for impairment is included in the selling, general and
administrative expense section in the fiscal year 2000 accompanying
consolidated statements of operations.
Note F: Intangible assets
-------------------------
Intangible assets at August 31, 2000 consisted of the following:
Patent costs $ 143,318
Less: accumulated amortization (52,130)
---------
Net Intangible assets $ 91,188
=========
Amortization expense was $7,769 and $8,920 for the years ended August 31,
2000 and 1999, respectively.
Note G: Long-term debt and lease obligations
--------------------------------------------
Long-term debt at August 31, 2000, consisted of the following:
Note payable to a corporation; principal due two years
from the effective date of May 14, 1999; interest due
in quarterly installments at an interest rate of 8.25% $ 150,000
Note payable to a bank; principal and interest due in
monthly installments at interest rates varying from
9.86% to 9.95% 25,973
Notes and capital leases payable to a corporation;
principal and interest due in monthly installments at
interest rates varying from 8.63% to 17.79% 64,368
---------
Total debt 240,341
Less: current portion (188,383)
---------
Long-term debt $ 51,958
=========
Principal repayments on notes payable and capital leases required for the
next five years are as follows:
2001 $188,383
2002 32,889
2003 15,458
2004 3,611
2005 -0-
--------
Total debt $240,341
========
As of August 31, 2000, equipment under capital lease and the related
accumulated amortization totaled $113,889 and $50,472, respectively.
Amortization of assets recorded is included in depreciation and
amortization expense.
F-11
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Notes to Consolidated Financial Statements
August 31, 2000
During the end of the third quarter of Fiscal 1999, the Company negotiated
a $150,000 loan agreement with SafeScience, Inc. (SFAS). The note bears
interest at a rate of 8.25% per annum on the outstanding principal amount
of the note, and the interest shall be payable quarterly in arrears
commencing three months after the date of the first of twelve semi-monthly
advances. The principal sum of the note shall be due and payable two years
from the effective date of May 14, 1999.
Collateral on this note is grant of the right and license to the exclusive
access and use of the Product Formulas to SFAS for the sole purpose of
satisfying SAFS' production demand as set forth in the Supply &
Distribution Agreement between the Company and SFAS.
Interest expense related to long term debt and lease obligations as of
August 31, 2000 totaled $25,008.
Note H: Shareholders' equity
----------------------------
In the first quarter of fiscal year 2000, the Company's board of directors
authorized selling 3,437,500 shares of the Company's common stock at a
price of $.16 per share through a Private Placement Memorandum offered
solely to accredited and sophisticated investors. In March and April 2000,
the Company sold 1,555,625 of the authorized 3,437,500 shares of common
stock offered through the Private Placement Memorandum.
During the second quarter of fiscal year 2000, the board of directors
authorized the issuance of 20,558 shares of common stock at a price of $.46
per share and 13,618 shares of common stock at a price of $.24 per share.
The common stock was issued to Wellesley Capital Group, Inc. as
remuneration for expenses incurred during fund raising efforts for the
period January 1998 through September 1999.
In April 1999, the board of directors authorized an extension for the
Preferred "B" stock of the Company from June 30, 1999 to June 30, 2001.
In the first quarter of fiscal 1998, the Company issued Baer & Company,
L.L.C. 39,996 shares of $.001 par value common stock for expenses incurred
from July 1996 through November 1997 while raising funds on behalf of the
Company. 27,370 shares were issued at a price of $.43775 per share. The
remaining 12,626 shares were issued at a price of $.6661 per share. The
prices per share are based on the average of the bid and last trade value
of the Company's stock during the period in which the fund raising expenses
were incurred. Expenses for the fair value of the services provided were
expensed as incurred.
In January 1998, the Company's board of directors authorized selling up to
2 million shares of common stock at the best negotiated price. In March
1998, the Company sold 986,413 shares of the common stock through a special
private placement solely to accredited and sophisticated investors at an
offering price of $.75 per share. The remaining balance of the common
shares, 1,013,587, were outstanding at August 31, 1999.
The Company issued 33,333 shares of common stock at the special private
placement offering price of $.75 per share to Global Strategy & Associates,
James A. Wylie, Jr. in lieu of cash for consulting services rendered during
the months of January, February and March, 1998.
F-12
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Notes to Consolidated Financial Statements
August 31, 2000
Stock-based Incentive Compensation Plans
----------------------------------------
In October 1995, Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock Based Compensation," was issued effective in
fiscal year 1997 for the Company. Under SFAS 123, companies could either
adopt a "fair valued based method" of accounting for stock-based incentive
compensation plans, as defined, or may continue to use accounting methods
as prescribed by APB Opinion No. 25. The Company has elected to continue
accounting for its plan under APB Opinion No. 25.
The Company's policy is to grant options to purchase common stock to
directors, officers or key employees as part of an incentive program. In
addition to the grants under this program, the Company grants options to
purchase common stock to individuals as compensation for services rendered
in lieu of cash. On January 17, 1991, the Company established a
non-qualified stock option plan (the 1991 Plan) under which 1 million
options to purchase common stock were made available. In fiscal year 1994,
the Company amended the 1991 non-qualified stock option plan to authorize
the issuance of an additional 600,000 options. All options are
non-compensatory and are issued at or above the market price on the date
the option is granted.
The Company's Compensation and Options Committee determines the term of
each grant and when it becomes exercisable. No compensation expense has
been recorded in connection with stock options as the exercise price of all
options granted exceeded market price of the shares on the dates of the
grants. The options expire three years from the date of grant.
The following table summarizes the activity related to stock options:
--------------------------------------------------------------------------------
Number Number of Range of Weighted
of Options Options Exercise Average
Issued under Issued outside Prices Exercise
the Plan The Plan Price
--------------------------------------------------------------------------------
Outstanding at
August 31, 1998 509,000 1,636,752 $.34 - $2.50 $0.80
Granted -- 25,000 $2.00 $2.00
Exercised -- -- -- --
Forfeited -- (200,888) $0.75 - $1.00 $0.98
--------- ----------
Outstanding at
August 31, 1999 509,000 1,460,864 $.34 - $2.50 $0.85
Granted -- -- -- --
Exercised -- -- -- --
Forfeited -- (504,697) $.51 - $2.50 $0.94
--------- ----------
Outstanding at
August 31, 2000 509,000 956,167 $.34 - $2.00 $0.76
--------------------------------------------------------------------------------
F-13
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Notes to Consolidated Financial Statements
August 31, 2000
The following table summarizes information about stock options outstanding
at August 31, 2000:
--------------------------------------------------------------------------------
Options Outstanding Options Exercisable
--------------------------------------------------------------------------------
Wgtd. Avg.
Range of Number Remaining Wgtd. Avg. Number Wgtd. Avg.
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices At 8/31/00 Life Price at 8/31/00 Price
------ ---------- ---- ----- ---------- -----
$0.34 - $0.99 1,264,000 0.4 years $0.57 1,264,000 $0.57
$1.00 - $2.00 201,167 1.5 years $1.94 201,167 $1.94
--------------------------------------------------------------------------------
The options exercisable at August 31, 2000 and 1999, respectively, were
1,465,167 and 1,794,752 with weighted-average exercises prices of $.82 and
$.81, respectively.
Stock Options Granted, Exercised and Forfeited
----------------------------------------------
2000
----
During fiscal year 2000, 504,697 stock options outside of the Company's
Stock Option Plan expired. The exercise prices for these options range from
$0.51 to $2.50 per share.
No assumptions were necessary in fiscal year 2000 to calculate the fair
value of each option grant as no options were granted.
1999
----
During fiscal year 1999, 200,888 stock options outside of the Company's
Stock Option Plan expired. The exercise prices for these options range from
$.75 to $1.00 per share. Additionally, the Company granted 25,000 stock
options outside the Company's Stock Option Plan for consulting services
rendered. The exercise price for these options is $2.00 per share.
The Company's Board of Directors extended the expiration dates for 7,500
stock options at $1.00 per share and 103,667 stock options at $2.00 per
share for an additional three years from the original option expiration
date.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999: a) no dividend yield, b) risk-free
interest rate of 4.63%, c) expected contractual life of 3.4 years, d)
expected volatility of 100%.
Based on the above assumptions, the weighted-average grant-date fair value
of each option granted during fiscal 1999 was $0.088.
No employee options were granted in fiscal year 1999.
F-14
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Notes to Consolidated Financial Statements
August 31, 2000
1998
----
During fiscal year 1998, 102,619 stock options outside of the Company's
Stock Option Plan expired. The exercise prices for these options ranged
from $2.10 to $3.00 per share.
In December 1997, the Company's Board of Directors extended the expiration
date for 40,000 stock options granted in April 1991 to a financial
consultant for services rendered. The exercise period was extended for an
additional three (3) years from the expiration date.
No assumptions were necessary in fiscal year 1998 to calculate the fair
value of each option grant as no options were granted.
No employee options were granted in fiscal year 1998.
1997
----
The Company granted to employees 158,130 common stock options with exercise
prices equal to or greater than the market price of the stock on the grant
date. These options were issued in accordance with agreements entered into
by the Company and each employee.
The Company granted 53,130 stock options currently exercisable with an
exercise price of $1.00 per share for technical services rendered during
the period May 1, 1996 through June 30, 1997. These options expire during
the period from January 31, 2000 through June 30, 2000.
The Company granted 5,000 stock options currently exercisable with an
exercise price of $1.00 per share in accordance with the terms of certain
employment agreements. These options expire March 10, 2000.
The Company granted 100,000 stock options not currently exercisable with an
exercise price of $0.75 per share in accordance with the terms of certain
employment agreements. The stock options become exercisable when certain
performance parameters are met. The options expire June 30, 2001.
No compensation expense was recorded upon issuance of the 158,130 options
to employees in fiscal 1997 because the exercise price exceeded the market
prices of the Company's common stock on the measurement date.
The Company granted to non-employees 171,567 common stock options with
exercise prices equal to or greater than the market price of the stock on
the grant date.
The Company granted 100,000 stock options, of which 25,000 are currently
exercisable, with an exercise price of $0.51 per share pursuant to the
terms of a consulting agreement. The 75,000 stock options currently
non-exercisable become exercisable when certain performance milestones are
achieved. None of the milestones in accordance with the terms of the
agreement were achieved in fiscal 1998. These options expire June 30, 2001.
F-15
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Notes to Consolidated Financial Statements
August 31, 2000
The Company granted 66,667 stock options currently exercisable with an
exercise price of $0.65 in lieu of cash for consulting services rendered in
accordance with the terms of a settlement agreement dated April 10, 1997.
In connection with this grant, one director forfeited 33,333 options with
an exercise price of $2.00 per share previously granted to him. The options
expire July 28, 2000.
The Company granted 4,900 stock options currently exercisable with an
exercise price of $0.75 in lieu of cash for marketing services rendered.
The options expire January 31, 2000.
The Company will continue to use stock option arrangements when possible to
conserve its cash. The compensation costs for the related awards have been
recognized in the period for which they were granted. Accordingly, since no
instruments were issued, there is no pro forma information below.
Had compensation cost for the Company's 1997 grants for stock-based
employee compensation plans been determined consistent with SFAS 123, the
Company's net loss, net loss applicable to common share owners, and net
loss per common share for 1997 would approximate the pro forma amounts
below:
1997
---------------------------------------------------------------------
As Reported Pro forma
----------- -----------
Net loss $(1,106,149) $(1,169,793)
Net loss applicable to
common share owners $(1,345,197) $(1,408,841)
Net loss per common share $ (.10) $ (.11)
---------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997: a) no dividend yield, b) risk-free
interest rate of 6.39%, c) expected contractual life of 3.4 years, d)
expected volatility of 101%.
Based on the above assumptions, the weighted-average grant-date fair value
of each option granted during fiscal 1997 was $.40.
1996
----
The Company granted 757,555 common stock options with exercise prices that
exceeds the market price of the stock on the grant date. These options were
issued in accordance with terms of three agreements entered into by the
Company. The first of these agreements granted the Company's Chairman of
the Board a option to purchase 600,000 shares of common stock at an
exercise price of $.34 per share in lieu of cash compensation for services
to be rendered. In connection with this agreement, 536,000 options with an
exercise price of $.75 per share and 160,000 options with an exercise price
of $2.00 per share were forfeited to the Company's 1991 non-qualified stock
option plan. Another option agreement granted 150,055 stock options with an
exercise price of $1.00 per share for technical consulting services
F-16
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Notes to Consolidated Financial Statements
August 31, 2000
rendered in lieu of cash compensation. The third option agreement granted
7,500 stock options with an exercise price of $1.00 per share in accordance
with the terms of an employment agreement. There was no compensation
expense recorded upon issuance of these options in fiscal 1996 because the
exercise prices exceeded the market prices of the Company's common shares
on the measurement date.
1995
----
The Company granted 497,000 common stock options with exercise prices that
exceeds the market price of the stock on the grant date. These options were
issued in accordance with terms of agreements entered by the Company and
the Company's 1991 non qualified stock option plan. The Company granted an
affiliate, controlled by a member of the Company's Board of Directors,
options to purchase 137,000 shares of common stock at an exercise price of
$2.00 per share in lieu cash for the first two (2) years of a lease for the
Company's facility. In another agreement the Company granted options to
purchase 155,000 shares of common stock at exercise prices ranging from
$.65 to $2.00 per share in lieu of cash compensation for professional
consulting services rendered. The Company also granted 205,000 stock
options with exercise prices ranging from $.65 to $2.00 in accordance with
the Company's 1991 Stock Option Plan. There was no compensation expense
recorded upon issuance of these options in fiscal 1995 because the exercise
prices exceeded the market prices of the Company's common shares on the
measurement date.
1994, 1993, 1992 and 1991
-------------------------
The Company granted 1,333,452 common stock options with exercise prices
that exceeds the market price of the stock on the grant date. These options
were issued in accordance with terms of agreements entered by the Company
and the Company's 1991 non qualified stock option plan. The Company granted
options to purchase 333,452 shares of common stock at exercise prices
ranging from $.90 to $3.00 per share in lieu of cash compensation for
professional consulting services rendered. The Company also granted
1,000,000 stock options with an exercise price of $.75 per share in
accordance with the Company's 1991 Stock Option Plan. There was no
compensation expense recorded upon issuance of these options because the
exercise prices exceeded the market prices of the Company's common shares
on the measurement date.
Common Stock Purchase Warrants
------------------------------
During the second quarter of Fiscal 2000, the Company issued three (3)
warrant agreements granting the holders to purchase 50,000 shares of common
stock at an exercise price of $.15 per share. The warrants are attached to
promissory notes negotiated by the Company with major shareholders. Each
warrant agreement grants the holder the option to purchase one (1) share of
common stock for every dollar loaned to the Company.
In the fourth quarter of Fiscal 1999, the Company issued warrants to
purchase 380,000 shares of common stock at an exercise price ranging from
$.25 to $.75 per share. The warrants were issued in connection with loan
F-17
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Notes to Consolidated Financial Statements
August 31, 2000
agreements negotiated by the Company in order to meet immediate cash
requirements. The holders of these loan agreements were issued four
warrants for each dollar loaned to the Company. The warrants expire three
years from the effective date of the loan agreement.
The Company's Class D Common Stock Purchase Warrants expired on December
15, 1993. The Company issued Class E Common Stock Purchase Warrants for
every two Class D warrants that were outstanding on December 15, 1993.
1,062,917 Class E Common Stock Purchase Warrants were outstanding at August
31, 1997, each exercisable at $1.50 into one share of Common Stock until
June 15, 1999. The Class E Common Stock Purchase Warrants are callable by
the Company upon 30 days written notice to the holders. On January 8, 1998,
the Company's board of directors authorized lowering the exercise price of
the Class "E" Warrants to $.75 per share, and that a Warrant call be issued
effective immediately. The holders had 30 days to respond and if the
holders did not convert, the warrants expired after the 30 day period. None
of the Class "E" Warrants were exercised during the conversion period, and
the warrants expired on February 14, 1998.
The Company issued 100,000 Placement Agent Common Stock Purchase Warrants
to Gilford Securities, Inc. and 100,000 Placement Agent Common Stock
Purchase Warrants to FBB Corp pursuant to Warrant Agreements dated December
2, 1994. Each Placement Agent Common Stock Purchase Warrant entitles the
holder to purchase one share of the Company's common stock at the price of
$1.00 per share, at any time until October 15, 1999. There is no provision
for the call or redemption of the Placement Agent Common Stock Purchase
Warrants.
The Company issued Class Z Common Stock Purchase Warrants on September 11,
1996 as part of the June 1996 private stock offering made solely to
accredited investors. 2,471,667 Class Z warrants are outstanding at August
31, 1997, each exercisable at $.75 into one share of $.001 Common Stock
until June 30, 2001. The Class Z Common Stock Purchase Warrants are
callable by the company upon thirty days written notice at any time on or
after July 1, 2000 and at any time, notwithstanding the date, that the
common stock of the company has a closing bid price on ten consecutive
trading days of $2.00 per share or more.
In January 1996, the Company issued a Warrant to purchase 600,000 shares of
common stock to the Chairman of the Board as remuneration for services
rendered while holding that position. This Warrant may be exercised any
time on or after January 2, 1996 but prior to the earlier to occur of (i)
December 31, 2000, or (ii) a sale of substantially all of the stock or
assets of the Company in a transaction in which it is not the surviving
corporation. The exercise price is $2.00per share of common stock. The
Company assigns no value to the Common Stock Purchase Warrants in the
consolidated financial statements due to the immaterial value associated
therewith.
Stock Dividends - Series B and C
--------------------------------
The Series B and C Convertible Exchangeable Preferred Stock $.001 par per
share has an established declared dividend of $.07 per annum per share, due
on the 30th day of June of each year. The dividend accumulates if not paid
when due. The dividend may be paid in cash or in stock at the sole
discretion of the Board of Directors. If paid in stock, the common shares
issued will be valued at the average bid price for the 30 days preceding
the June 30 payment date. Once the price per share of common stock is
determined, a number of common shares equal to the dollar value of the
dividend which was to be paid on June 30, will be issued with any
fractional shares of the common stock dividend rounded up.
F-18
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Notes to Consolidated Financial Statements
August 31, 2000
Note I: Income taxes
--------------------
At August 31, 2000, deferred taxes consisted of the following:
Deferred tax assets, net operating loss carry forward $ 3,897,103
Deferred tax liabilities, excess of book over tax
depreciation 5,160
Valuation allowance (3,902,263)
-----------
Net deferred taxes $ 0
===========
The valuation allowance for deferred tax assets as of September 1, 1999 was
$3,648,223. The net change in the valuation allowance for the year ended
August 31, 2000 was an increase of $254,040. The Company has net operating
loss carryforwards of $11,442,020 available for federal income tax purposes
which are available to offset taxable income through 2011. The Company has
alternative minimum tax net operating loss credit carryforwards of
approximately $4 million available for future periods. A valuation
allowance of 100% of net operating loss carryforwards is maintained due to
uncertainty in the Company's ability to generate income.
Note J: Employee compensation plan
----------------------------------
The Company presently offers no post-employment/post-retirement benefits
which would be required to be reflected in its financial statements by SFAS
No. 112 and SFAS No. 106, respectively.
The Board of Directors has approved a management bonus pool which is based
upon 12 percent of gross profits before taxes in excess of $500,000
annually. Bonuses are to be paid to persons filling designated positions.
As of August 31, 2000, no bonuses had been paid under this plan.
Note K: Commitments
-------------------
The Company is committed to renting its office space under a non-cancelable
operating lease until February 28, 2001. Rental expense for the leased
premise is $6,000 per month payable in cash from March 1, 1996 through
February 28, 2001 with a renewal option for five additional years at $7,200
per month. The facility is rented from a company controlled by a former
member of the Company's board of directors. This rental agreement
supersedes the original agreement dated October 1, 1993 that was amended
November 19, 1993 and October 15, 1994.
Future minimum rental payments, payable in cash, under the lease are as
follows:
Payable in
Year ending August 31, Cash
---------------------- ---------
2001* $ 36,000
=========
*The term of the operating lease expires February 28, 2001.
Rent expense under this agreement during the fiscal year ended 2000 totaled
$72,000.
F-19
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Notes to Consolidated Financial Statements
August 31, 2000
Note L: Disclosures about Reportable Segments
---------------------------------------------
Delta-Omega Technologies, Ltd. has four reportable segments: solvents and
cleaners, firefighting and spill response, oilfield and SafeScience. 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-toxic, non-hazardous and non-reportable. The oilfield division produces
products that cater to the needs of the oil and gas industry. The
SafeScience line of products serves the consumer with products that are
defined exclusively for safety-for human health and the environment.
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.
<TABLE>
<CAPTION>
Delta-Omega Technologies, Inc.
Disclosure of Reported Segment Profit or Loss, and Segmented Assets
Fiscal Year Ended August 31, 2000
Solvents & Firefighting & Oilfield SafeScience All
Cleaners Spill Response Other
<S> <C> <C> <C> <C> <C>
Revenues from external
Customers $ 407,391 $ 398,187 $ 196,036 $ 301,721 $ --
Intersegment revenues -- -- -- -- --
Interest Revenue -- -- -- -- 33,880
Interest expense -- -- -- -- 156,784
Depreciation and
Amortization 24,977 24,196 12,488 16,392 24,792
Segment Profit (126,869) (42,195) (43,211) (51,930) (469,436)
Segment Assets -- -- -- -- 640,606
Expenditures for segment
Assets -- -- -- -- 43,223
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Notes to Consolidated Financial Statements
August 31, 2000
Delta-Omega Technologies, Inc.
Disclosure of Reported Segment Profit or Loss, and Segmented Assets
Fiscal Year Ended August 31, 1999
Solvents & Firefighting & Oilfield SafeScience All
Cleaners Spill Response Other
<S> <C> <C> <C> <C> <C>
Revenues from external
Customers $ 633,921 $ 385,022 $ 254,857 $ 177,954 --
Intersegment revenues -- -- -- -- --
Interest Revenue -- -- -- -- 851
Interest expense -- -- -- -- 50,149
Depreciation and
Amortization 33,995 20,555 14,130 10,277 23,326
Segment Profit 11,708 (32,593) (72,700) (57,922) (494,582)
Segment Assets -- -- -- -- 930,484
Expenditures for segment
Assets -- -- -- -- 50,832
</TABLE>
Delta-Omega Technologies, Inc.
Reconciliations of Reportable Segment Revenues
Profit or Loss, and Assets
Fiscal Year Fiscal Year
--------------------------
2000 1999
----------- -----------
Revenues
--------
Total revenues for reportable segments $ 1,303,335 $ 1,451,754
=========== ===========
Profit or Loss
--------------
Total profit or loss for reportable segments $ (264,205) ($ 151,507)
Other profit or loss (469,436) (494,582)
----------- -----------
Income before income taxes and extraordinary items ($ 733,641) ($ 646,089)
=========== ===========
Assets
------
Other assets $ 640,606 $ 930,484
Total assets for reportable segments -- --
----------- -----------
Consolidated total $ 640,606 $ 930,484
=========== ===========
Other significant Items
-----------------------
Research and Development Expenses $ 90,837 $ 153,081
Depreciation Expense-R&D Equipment 24,792 35,519
*Research and Development expenses not directly accounted for in the totals of a
specific reporting segment is included in the classification "All Other" for
fiscal year 2000 and 1999.
F-21
<PAGE>
Delta-Omega Technologies, Inc. and Subsidiary
---------------------------------------------
Notes to Consolidated Financial Statements
August 31, 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 the reportable segment that include only sales to
SafeScience, Inc. represents approximately twenty-three (23%) percent and
sixteen (16%) percent of the Company's total consolidated revenues for fiscal
year 2000 and 1999, respectively.
Note M: Contingencies
---------------------
The Company is a defendant in certain claims and legal actions arising in
the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters
is not expected to have a material adverse effect on the financial
condition of the Company.
F-22
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DELTA-OMEGA TECHNOLOGIES, INC.
Dated: November 10, 2000 By:/s/ Marian A. Bourque
------------------------
Marian A. Bourque
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
Signatures Titles Date
---------- ------ ----
/s/ Larry G. Schafran Chairman of the Board November 10, 2000
---------------------
Larry G. Schafran
/s/ James V. Janes, III Chief Executive Officer, November 10, 2000
----------------------- President
James V. Janes, III
/s/ Marian A. Bourque Chief Financial Officer, November 10, 2000
--------------------- Secretary and Treasurer
Marian A. Bourque
F-23
