UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14
(c)
of the Securities Exchange Act of 1934
(Amendment No.)
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Preliminary Information Statement
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Confidential, for Use of the Commission Only (as
permitted by Rule 14c-5 (d)(2))
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Definitive Information Statement
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DELTRON, INC.
(Name of Registrant As Specified In
Charter)
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THIS
INFORMATION STATEMENT IS BEING PROVIDED TO
YOU BY THE BOARD OF DIRECTORS OF THE
COMPANY
WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE
REQUESTED NOT TO SEND US A PROXY
INFORMATION STATEMENT
(Preliminary)
DELTRON, INC.
11377 Markon Drive
Garden Grove, CA 92841
April 5, 2011
GENERAL INFORMATION
This Information Statement has been filed
with the U.S. Securities and Exchange Commission and is being furnished,
pursuant to Section 14C of the Securities Exchange Act of 1934, as amended (the
Exchange Act), to the holders (the Stockholders) of the common stock, par
value $0.001 per share (the Common Stock), of Deltron, Inc., a Nevada
Corporation (the Company), to notify such Stockholders of the following:
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(1)
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On or about August 5, 2010, the
Company received written consents in lieu of a meeting of shareholders
from Stockholders owning a majority of the issued and outstanding shares
of the Companys voting securities authorizing the Board to amend our
certificate of incorporation in the State of Nevada to authorize
20,000,000 shares of preferred stock outstanding at any time, no par value
(the Preferred Stock).
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On March 7, 2011, the Board ratified the
additional authorized shares of preferred stock. Accordingly, your consent
is not required and is not being solicited in connection with the approval of
the actions.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND A PROXY.
The entire cost of furnishing this
Information Statement will be borne by the Company. The Company will
request brokerage houses, nominees, custodians, fiduciaries and other like
parties to forward this Information Statement to the beneficial owners of the
Common Stock held of record by them. The Board has fixed the close of
business on June 17, 2010, as the record date (the Record Date) for the
determination of Stockholders who are entitled to receive this Information
Statement.
Each share of our common stock entitles its
holder to one vote on each matter submitted to the stockholders. However,
because the stockholders holding at least a majority of the voting rights of all
outstanding shares of capital stock as of the Record Date have voted in favor of
the foregoing actions by resolution; and having sufficient voting power to
approve such proposals through their ownership of the capital stock, no other
consents will be solicited in connection with this Information Statement.
You are being provided with this
Information Statement pursuant to Section 14C of the Exchange Act and Regulation
14C and Schedule 14C thereunder, and, in accordance therewith, the forgoing
action will not become effective until at least 10 calendar days after the
mailing of this Information Statement.
This Information Statement is being mailed
on or about April [
s
], 2011, to all Stockholders of
record as of the Record Date.
1
AVAILABILITY
OF ANNUAL REPORT ON FORM 10-K AND
QUARTERLY REPORTS ON FORM 10-Q AND
HOUSEHOLDING
A copy of the Companys 1934 Act Filings,
as filed with the Commission are available upon written request and without
charge to shareholders by writing to the Company c/o, Chief Financial Officer,
11377 Markon Drive, Garden Grove, CA 92841, or by calling telephone number (714)
891-1795. A copy of any and all information that has been incorporated by
reference into this information statement shall be sent by first class mail or
other equally prompt means within one business day of receipt of such
request.
In certain cases, only one 1934 Act Filing
may be delivered to multiple shareholders sharing an address unless the Company
has received contrary instructions from one or more of the stockholders at that
address. The Company will undertake to deliver promptly upon written or oral
request a separate copy of the annual report or quarterly report(s), as
applicable, to a stockholder at a shared address to which a single copy of such
documents was delivered. Such request should also be directed to Chief Financial
Officer, Deltron, Inc. at the address or telephone number indicated in the
previous paragraph. In addition, shareholders sharing an address can
request delivery of a single copy of annual reports or quarterly reports if they
are receiving multiple copies of 1934 Act Filings by directing such request to
the same mailing address.
All 1934 Act Filings are filed with the
Commission and are of public record. Such information can be accessed at
www.sec.gov.
OUTSTANDING VOTING SECURITIES
As of June 17, 2010, the Company had
554,500,000 shares of Common Stock issued and outstanding and 123,978,980
outstanding to be issued, Each share of issued outstanding Common Stock is
entitled to one vote on matters submitted for Stockholder approval.
The holders of the 352,170,500 shares of
the Companys Common Stock executed and delivered to the Company a written
consent approving the actions set forth herein. Since the action has been
approved by the holders of the majority of the issued and outstanding voting
shares of the Company, no proxies are being solicited with this Information
Statement. The Board adopted resolutions ratifying the action set forth
herein on March 7, 2011.
General
Our authorized capital stock consists of
10,000,000,000 shares of common stock at $0.001 par value per share. There
are no provisions in our charter or by-laws that would delay, defer or prevent a
change in our control.
Common Stock
As of June 17, 2010, 554,500,000 shares of
common stock are issued and outstanding and held by 34 stockholders, and
123,978,980 outstanding, to be issued, shares of common stock. Holders of
our common stock are entitled to one vote for each share on all matters
submitted to a stockholder vote.
The holders of our common stock (i) have
equal ratable rights to dividends from funds legally available therefore, when,
as and if declared by our Board of Directors; (ii) are entitled to share in all
of our assets available for distribution to holders of common stock upon
liquidation, dissolution or winding up of our affairs; (iii) do not have
preemptive, subscription or conversion rights and there are no redemption or
sinking fund provisions or rights; and (iv) are entitled to one non-cumulative
vote per share on all matters on which stockholders may vote.
Non-cumulative Voting
Holders of shares of our common stock do
not have cumulative voting rights, which means that the holders of more than 50%
of the issued and outstanding shares, voting for the election of directors, can
elect all of the directors to be elected, if they so choose, and, in such event,
the holders of the remaining shares will not be able to elect any of our
directors.
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Dividends
Since inception we have not paid any
dividends on our common stock. We currently do not anticipate paying any
cash dividends in the foreseeable future on our common stock. Although we
intend to retain our earnings, if any, to finance the exploration and growth of
our business, our Board of Directors will have the discretion to declare and pay
dividends in the future. Payment of dividends in the future will depend
upon our earnings, capital requirements, and other factors, which our Board of
Directors may deem relevant.
Warrants
There are no warrants to purchase our
securities outstanding.
Options
Under the Companys 2010 Stock Incentive
Plan for Employees, Contractors, Consultants, Advisors, Board Advisors, Board
Members and Others (the Plan), the Company is authorized to issue up to
200,000,000 shares of common stock or options to purchase shares of common
stock. As of December 31, 2010, the Company has authorized and issued
80,000,000 shares under the Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information
with respect to the beneficial ownership of our common stock known by us as of
December 20, 2010, by:
·
each person or entity known by us to
be the beneficial owner of more than 5% of our common stock;
·
each of our directors;
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each of our executive officers; and
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all of our directors and executive
officers as a group.
The percentages in the table have been
calculated on the basis of treating as outstanding for a particular person, all
shares of our common stock outstanding on such date and all shares of our common
stock issuable to such holder in the event of exercise of outstanding options,
warrants, rights or conversion privileges owned by such person at said date
which are exercisable within 60 days of December 20, 2010. Except as
otherwise indicated, the persons listed below have sole voting and investment
power with respect to all shares of our common stock owned by them, except to
the extent such power may be shared with a spouse.
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Name and Address
of Beneficial Owner
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Title of Class
(1)
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Shares of Common Stock Beneficially
Owned
(1)
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Percentage
Ownership
(2)
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Acadia LLC
131 E. Oakland Drive
Saint Rose, LA 70087
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Common
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45,000,000
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5.93%
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Bayou Business
4041 Williams Blvd. Ste A9 #192
Kenner, LA 70065
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Common
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50,000,000
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6.59%
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Capital Formula
PO Box 3923
Carson City, NV 89072
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Common
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45,000,000
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5.93%
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Henry Larrucea, President, CEO, CFO, Treasurer,
Director
56-141 Maika Way
Kaleiwa, HI 96712
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Common
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82,021,000
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10.81%
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All officers and directors as a group (1
person)
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82,021,000
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10.81%
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(1)
As used herein, the
term beneficial ownership with respect to a security is defined by Rule 13d-3
under the Securities Exchange Act of 1934 as consisting of sole or shared voting
power (including the power to vote or direct
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the vote) and/or sole or shared investment power (including the
power to dispose or direct the disposition of) with respect to the security
through any contract, arrangement, understanding, relationship or otherwise,
including a right to acquire such power(s) during the next 60 days.
(2)
Percentage based upon
634,500,000 shares of common stock issued and outstanding as of December 20,
2010 and 123,978,980 outstanding to be issued).
The Company has a number of outstanding
Convertible Notes, which can be converted into shares of common stock at the
option of the note holder at any time prior to repayment of the note. All
notes are currently eligible for conversion, but no note holders have notified
the Company that they are exercising that conversion right. Assuming that
all outstanding notes are converted into shares at $0.001 per share, which is
the guaranteed lowest conversion price, the Company would have issued and
outstanding a total of 938,705,281 shares of common stock. The following
table reflects those shareholders who, at that time, would own beneficially 5%
or more of the Companys common stock.
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Name and Address
of Beneficial Owner
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Title of Class (1)
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Shares of Common Stock Beneficially
Owned
(1)
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Percentage
Ownership
(2)
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Acadia LLC
131 E. Oakland Drive
Saint Rose, LA 7008
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Common
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76,183,562
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8.12%
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Bayou Business
4041 Williams Blvd. Ste A9 #192
Kenner, LA 70065
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Common
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50,000,000
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5.33%
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Capital Formula
PO Box 3923
Carson City, NV 89072
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Common
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45,000,000
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4.79%
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Affinity Advisors, LLC
8 Wayride Circle
Bensford, NY 14534
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Common
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35,000,000
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3.73%
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Donald Pratt
261 South Timber Creek Drive
Amarillo, TX 79118
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Common
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45,727,397
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6.77%
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Henry Larrucea, President, CEO, CFO, Treasurer,
Director
56-141 Maika Way
Kaleiwa, HI 96712
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Common
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82,021,000
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8.74%
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All officers and directors as a group (1
person)
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82,021,000
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8.74%
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Securities Authorized for Issuance Under Equity
Compensation Plans
On November 9, 2010, the Company filed an
S8 Registration Statement registering its 2010 Stock Option Plan for Employees
and Consultants.
Under the terms of the Plan, a total of
200,000,000 shares of stock or options to purchase common stock can be issued to
compensate directors, employees and consultants of the Company for services
rendered to the Company.
The terms of the Plan are fully disclosed in the copy of
the Plan filed as an exhibit to the S8, but include the following:
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*
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price and other terms of issuance of
shares under the Plan are to be determined by the Board of Directors, who
administer the Plan and who will take into account the market price of the
Companys securities at the date of any agreement to issue shares under
the Plan.
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*
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shares of common stock issuable under
the Plan have the same rights and restrictions as all other issued and
issuable shares of common stock of the Company.
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As of December 31, 2010, the Company issued 80,000,000
shares to an employee as prepayment for bonus and salaries for the six-month
period ended May 7, 2011.
DISSENTERS RIGHTS OF APPRAISAL
Section 78.3793 of Nevada Revised Statue
(NRS) which provides dissenting shareholders with rights to obtain payment of
the fair value of his/her shares in the case of control share acquisition is not
applicable to the matters disclosed in this Information Statement.
Accordingly, dissenting shareholders will not have rights to appraisal in
connection with the amendment to the Articles of Incorporation discussed in this
Information Statement.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Overview
As previously described, we completed an
Asset Purchase under which Deltron acquired the assets of Blu Vu Deep Oil &
Gas Exploration, Inc. The transaction was treated as a reverse
recapitalization, with Blu Vus wholly owned subsidiary, Elasco, Inc. (Elasco)
becoming the accounting acquirer. Therefore, Deltron assumed the fiscal
year end of Elasco of December 31. On August 13, 2010, following the
completion of the Asset Purchase Agreement, the Company adopted the fiscal year
end of the former shell Company of September 30 for financial reporting
purposes.
The following discussion highlights the
principal factors that have affected our financial condition and results of
operations as well as our liquidity and capital resources for the periods
described. The discussion reflects the financial condition and results of
operations as of and for the three-months periods ended December 31, 2010 and
2009, and the transition period from January 1, 2010 to September 30, 2010.
This discussion contains forward-looking statements. Please see
Forward-Looking Statements for a discussion of the uncertainties, risks and
assumptions associated with these forward-looking statements.
We are a manufacturing company with two
distinct business segments polyurethane and rebreather. Our primary
business is Elasco which is focused on manufacturing technology for plastic and
polyurethane products. Our secondary business segment is focused on the
development of deep-sea exploration breathing technology marketed as Blu Vu.
Polyurethane Products
Our polyurethane products are manufactured
and sold by our wholly owned subsidiary, Elasco, which makes products for the
recreational roller skate and skateboarding markets. They are of the high
performance type used by dedicated enthusiasts in those sports. These
products are sold to O.E.M. customers, who market and distribute them through
channels specific to their individual retail outlets, as well as by direct
marketing through their internet sales sites. Most are sold through
distribution channels of specialty stores and roller rinks. They are
differentiated from the typical product found in larger retail stores in that
they are not considered a toy category, but rather a sporting good.
Elasco also produces a variety of
industrial products that are used on assemblies and machinery where a long life
cycle is needed. Some typical products are exercise equipment rollers,
bowling pin setter pads and liners, and fire hydrant seals. Elascos
polyurethane polymers excel in the gap between rubber and plastics, but can
mimic many rubbers and plastics with specific formulations that optimize those
characteristics. A recent formula developed exclusively by Elasco uses a
natural soy-based resin as an ingredient to make an elastomer that performs like
other hydrocarbon derived polyurethanes. This reduces related carbon
emissions from the manufacturing process for that resin by 36%. This
product is marketed as a green alternative to oil based products, and is finding
favor in the youth market that many of Elascos products service.
Rebreather System
Normal scuba is an open circuit system.
Combining a high-pressure cylinder and a demand regulator, a diver inhales
gas at ambient pressure, uses a little of the oxygen in the gas, and then
exhales. When the diver exhales the gas, it bubbles to the
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surface,
carrying as much as 98% of the original oxygen it contained. The open
circuit comes from the fact that the exhaled gas is released on every
breath.
The advantage that a rebreather has over
normal scuba system is that it recirculates the gas a diver is breathing,
allowing the diver to breath from the same gas over and over again, after
removing the carbon dioxide generated by human metabolism. Rebreathers
provide gas to the diver in an optimal mix for the depth at which they are
diving. The system adds oxygen and other gases to make up what is
consumed. Because the gas is reused, instead of being thrown away with
every breath, a diver can remain underwater far longer on much less gas.
In fact, for some dives, rebreathers can be as much as fifty times more
efficient on gas consumption than standard scuba tanks. This minimizes
decompression obligations, or in some cases eliminates it for shallower working
dives. Less decompression time means more working time, and greater cost
efficiency for the project.
Business operations
As of December 31, 2010, we had an
accumulated deficit of approximately $3.26 million and, as of September 30,
2010, our accumulated deficit was approximately $3.08 million and as of December
31, 2009 our accumulated deficit was approximately $2.72 million. We
incurred operating losses of $83,095 and $84,737 for the three months ended
December 31, 2010 and 2009, respectively, and incurred net losses of $183,159
and $99,299 for those respective periods. We incurred operating losses of
$189,532 and $610,866 for the nine months ended September 30, 2010 and 2009,
respectively, and incurred net losses of $360,590 and $400,564 for those
respective periods. We expect our net losses to continue for at least the next
couple of years. We anticipate that a substantial portion of our capital
resources and efforts will be focused on the scale up due to expansion via
acquisition, product development and other general corporate purposes, including
the payment of legal fees due to our acquisitions.
As of December 31, 2010, our current
liabilities of approximately $1.33 million exceeded our current assets of
$919,395 by $413,631 and as of September 30, 2010, our current liabilities of
approximately $1.31 million exceeded our current assets of approximately $1.05
million by $253,061. Our net losses will continue for the foreseeable future.
As part of the $1.33 million of current liabilities at December 31, 2010
we have $155,196, net of note discount of $20,304, of convertible notes to
related parties and $33,805, net of note discount of $43,695 of convertible
notes to unrelated parties. As part of the $1.31 million of current liabilities
at September 30, 2010 we have $96,167, net of note discount of $79,333, of
convertible notes to related parties. We are currently planning to issue
additional stocks and convertible notes to support our expansion. As a
result, the additional equity funding may result in significant dilution to
existing stockholders. If adequate funds are not available, we may be required
to delay or curtail significantly our development and commercialization
activities. This would have a material adverse effect on our business,
financial condition and/or results of operations and could ultimately cause us
to have to cease operations.
Financial Operations Overview
Sales
Our sales are derived from the sale of
plastic and polyurethane products. Customers are generally billed at
shipping of products. We currently have not generated any revenues from
the sale of rebreather system for the three month periods ended December 31,
2010 and 2009 and for the nine month periods ended September 30, 2010 and 2009.
Cost of Sales
Cost of sales for plastic and polyurethane
products represents the cost of direct labor, raw material, supplies and other
miscellaneous support expenses. No cost of sales for rebreather system is
recorded because we have not generated any revenues from the sale of rebreather
system.
Selling, General and
Administrative
Our selling expenses consist primarily of
personnel, media, support and travel costs to inform user organizations and
consumers of our products. Our general and administrative expenses consist
primarily of personnel, occupancy, legal, consulting and administrative and
support costs for our operations.
6
Critical
Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our
financial condition and results of operations is based on our financial
statements, which have been prepared in accordance with U.S. generally accepted
accounting principles. The preparation of these consolidated financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities and expenses and the disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as revenues and expenses during the reporting periods. We evaluate
our estimates and judgments on an ongoing basis. We base our estimates on
historical experience and on various other factors we believe are reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results could therefore differ
materially from those estimates under different assumptions or conditions.
Our significant accounting policies are described in Note 1 to our
unaudited condensed consolidated financial statements included in Item 1 of this
report. We believe the following critical accounting policies reflect our
more significant estimates and assumptions used in the preparation of our
consolidated financial statements.
Revenue Recognition
Sales for our polyurethane products are
recognized when our plastic or polyurethane products are shipped to our
customers. Currently for rebreather system, there have not been any
revenues recognized from the sale of its products.
Results of Operations for the Nine Months Ended
September 30, 2010 and 2009 (Unaudited)
As earlier described, we operate in two
business segments: Polyurethane products and Rebreather system. Our Elasco
business focuses on the delivery of plastic and polyurethane product to our
customer. Its principal business is manufacturing and selling of open cast
molded polyurethane elastomer products such as skateboard, roller skate, and
industrial wheels. Our Rebreather system, which is marketed as Blu Vu, is
engaged in the potential manufacture and mass-market of proprietary breathing
equipment developed specifically for the oil and gas, mining and safety
industries, and military and recreational divers.
The following table presents consolidated
statement of operations data for each of the periods indicated as:
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Nine months ended
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September 30,
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2010
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2009
(Unaudited)
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Percent Change
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Sales
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2,546,606
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1,511,133
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69%
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Cost of sales
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2,269,102
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1,364,162
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66%
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Gross profit
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277,504
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146,971
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89%
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Selling, general and
administrative
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467,036
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757,837
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(38)%
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Operating loss
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(189,532)
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(610,866)
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(69)%
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Other income (expense), net
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(169,458)
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210,302
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(181)%
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Net (loss)
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(360,590)
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(400,564)
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(10)%
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Sales
With respect to our polyurethane business,
our sales increased by $1,035,473 for the nine months ended September 30, 2010,
compared to the same period in 2009, due to recovery in the economy and
introduction of our new products to our current customer base.
In respect to our rebreather product, we
have not produced sales as of September 30, 2010 and 2009.
7
Cost of
Sales
Cost of sales consists of payroll, raw
material, supplies and other miscellaneous costs for the Polyurethane products.
For the nine-month period ended September 30, 2010, costs of sales of
$2,269,102 consist primarily of labor cost of $845,120, raw material cost of
$1,179,946 and other costs of $244,036. For the nine-month period ended
September 30, 2009, cost of sales of $1,364,162 consisted primarily of labor
costs of $566,161, raw material cost of $603,959, and other costs of $194,042.
We expect costs of sales will increase as an absolute number as more
plastic and polyurethane products are produced. However, we expect the
cost of sales to decrease as a percentage of revenues as we improve our
operating efficiency and increase the automation of certain processes.
Selling, General and Administration
For the nine months ended September 30, 2010 and 2009,
our selling, general and administrative expenses for each segment are as
follows:
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2010
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2009 (Unaudited)
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Rebreather
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$
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192,878
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$
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480,662
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Polyurethane
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274,158
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277,175
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$
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467,036
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$
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757,837
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Selling, general and administrative
expenses associated with our polyurethane business consist primarily of payroll
costs, rental fee, professional fee, insurance, and other expense. For the
nine months ended September 30, 2010, selling, general and administrative
expenses included the following: payroll and benefits $108,294, consulting fee
$32,127, professional fees $18,435, rent expense $49,797, insurance expenses
$20,224, and other expenses $45,281. For the comparable period in 2009 expenses
were as follows: payroll and benefits $134,343, rent expense $49,797, consulting
$36,538, professional fee $9,716, insurance expenses $14,447, and other expenses
$32,334.
Comparing the nine months ended September
30, 2010, with the same period in 2009, the decrease in selling, general and
administrative expenses were primarily due to decrease in payroll and benefits
by $26,049 in the 2010 period as a result of a reduction in staff and the
reassignment of staff to another department. Other expenses remained
consistent for the nine months ended September 30, 2010 and 2009.
General and administrative expenses
associated with our Blu Vu rebreather system consist primary of consulting and
professional fees. Comparing the general and administrative expenses for the
nine months ended September 30, 2010, with the same period in 2009, the decrease
was primarily due to the Company ended various consulting agreements.
O
ther income (expense)
For the nine months ended September 30,
2010, we incurred other expenses of $169,458, which consisted primarily $96,167
amortization of note discount resulted from beneficial conversion feature
embedded in the $175,500 convertible notes; total interest of $53,397 paid and
accrued on the $125,000 line of credit, $1,095,110 long term promissory notes,
and $175,500 convertible notes due to certain shareholders and officer.
For the comparable period in 2009, we
incurred interest expense of $58,948 paid and accrued on the $125,000 line of
credit and $1,095,110 long term promissory notes due to a shareholder and
officer. We also recorded a $256,750 gain on extinguishments of a debt due
to the former owner of Elasco.
Net Loss
The decrease in net loss of $39,974 for the
nine months ended September 30, 2010, compared to the same period in 2009, was a
net result of: an increase in our polyurethane product sales, a decrease in
selling, general and administration expenses due to the reduction of consulting
expense in 2010; the gain recorded on the extinguishment of owners debt of
$256,760 in
8
2009 related to
the acquisition of Elasco; and the increase in interest expense of $90,616
resulted from amortization of beneficial conversion option embedded in the
convertible notes in 2010.
Results of Operations for the Three
Months Ended December 31, 2010 and 2009
As earlier described, we operate in two
business segments: Polyurethane products and Rebreather system. Our Elasco
business focuses on the delivery of plastic and polyurethane product to our
customer. Its principal business is manufacturing and selling of open cast
molded polyurethane elastomer products such as skateboard, roller skate, and
industrial wheels. Our Rebreather system, which is marketed as Blu Vu, is
engaged in the potential manufacture and mass-market of proprietary breathing
equipment developed specifically for the oil and gas, mining and safety
industries, and military and recreational divers.
The following table presents unaudited
consolidated statement of operations data for each of the periods indicated
as:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
|
December 31,
|
|
Percent
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
Sales
|
|
905,401
|
|
511,556
|
|
77%
|
Cost of sales
|
|
778,016
|
|
435,062
|
|
79%
|
Gross profit
|
|
127,385
|
|
76,494
|
|
67%
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
210,480
|
|
161,231
|
|
31%
|
|
|
|
|
|
|
|
|
Operating loss
|
|
(83,095)
|
|
(84,737)
|
|
(2)%
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
(99,229)
|
|
(14,562)
|
|
(581)%
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
(183,159)
|
|
(99,299)
|
|
84%
|
Sales
With respect to our polyurethane business,
our sales increased by $393,845 for the three months ended December 31, 2010,
compared to the same period in 2009, due to recovery in the economy and
introduction of our new products to our current customer base.
In respect to our rebreather product, we
have not produced sales as of December 31, 2010 and 2009.
Cost of Sales
Cost of sales consists of payroll, raw
material, supplies and other miscellaneous costs for the Polyurethane products.
For the three-month period ended December 31, 2010, costs of sales of
$778,016 consist primarily of labor cost of $310,840, raw material cost of
$400,705 and other costs of $66,471. For the three-month period ended
December 31, 2009, cost of sales of $435,062 consisted primarily of labor costs
of $232,697, raw material cost of $163,044, and other costs of $39,321. We
expect costs of sales will increase as an absolute number as more plastic and
polyurethane products are produced. However, we expect the cost of sales
to decrease as a percentage of revenues as we improve our operating efficiency
and increase the automation of certain processes.
Selling, General and Administration
For the three months ended December 31, 2010 and 2009,
our selling, general and administrative expenses for each segment are as follows
(unaudited):
9
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
Rebreather
|
$
|
104,973
|
|
$
|
71,046
|
Polyurethane
|
|
105,507
|
|
|
90,185
|
|
$
|
210,480
|
|
$
|
161,231
|
Selling, general and administrative
expenses associated with our polyurethane business consist primarily of payroll
costs, rental fee, professional fee, insurance, and other expense. For the
three months ended December 31, 2010, selling, general and administrative
expenses included the following: payroll and benefits $63,651, professional fees
$8,163, rent expense $16,599, insurance expenses $2,289, and other expenses
$14,805. For the comparable period in 2009 expenses were as follows: payroll and
benefits $37,826, rent expense $16,599, consulting $13,712, professional fee
$1,331, insurance expenses $2,503 and other expenses $18,214.
Comparing the three months ended December
31, 2010, with the same period in 2009, the increase in selling, general and
administrative expenses were primarily due to an increase in payroll expenses
resulting from increase in wages and bonus while other expenses decreased
because of more outsourced services were done in-house in 2010. Other
expenses remained consistent for the three months ended December 31, 2010 and
2009. General and administrative expenses associated with our Blu Vu
rebreather system consist primary of consulting and professional fees.
O
ther income (expense)
For the three months ended December 31,
2010, we incurred other expenses of $99,229, which consisted primarily $74,354
amortization of note discount on the $253,000 convertible notes; total interest
of $18,534 paid and accrued on the $100,000 line of credit, $1,095,110 long term
promissory notes, and $253,000 convertible notes due to certain shareholders and
officer, net of an accrued interest income of $513 on the $41,000 loan
receivable; and change in fair value of derivative liability.
For the comparable period in 2009, we
incurred interest expense of $14,562 paid and accrued on the $125,000 line of
credit and $1,095,110 long term promissory notes due to a shareholder and
officer.
Net Loss
The increase in net loss of $83,860 for the
three months ended December 31, 2010, compared to the same period in 2009, was a
net result of: an increase in our polyurethane product sales, an increase in
selling, general and administration expenses due to the increase in salaries and
professional fees in 2010 and the increase in interest expense resulted from
amortization of beneficial conversion option embedded in the convertible notes
in 2010
Liquidity and Capital
Resources
Since our inception, we have incurred
significant losses. As of December 31, 2010, we had an accumulated deficit
of approximately $3.26 million, and as of September 30, 2010, our accumulated
deficit was approximately $3.08 million. As of December 31, 2009, our
accumulated deficit was approximately $2.72 million. We have not yet
achieved profitability and anticipate that we will continue to incur net losses
for the foreseeable future. We expect that our sales and general and
administrative expenses will continue to grow and, as a result, we will need to
generate significant product revenues to achieve profitability. We may
never achieve profitability.
Due to the continued losses incurred from
our operations, as of December 31, 2010, we had $35,861 in cash and cash
equivalents and a working capital deficit of $413,631 compared to $1,852 in cash
and cash equivalents and a working capital of $253,061 at September 30, 2010. As
of December 31, 2009, we had $29,986 in cash and cash equivalents and a working
capital of $91,002
Operating Capital and Capital
Expenditure Requirements
Our continued operating losses and limited
capital raise substantial doubt about our ability to continue as a going
concern, and we need to raise substantial additional funds in the next 12 months
in order to continue to conduct our business. Until we
10
can generate a
sufficient amount of revenues to finance our cash requirements, which we may
never do, we expect to finance future cash needs primarily through public or
private equity offerings, debt financings, borrowings or strategic
collaborations.
We need additional funds to continue our
operations and will need substantial additional funds before we can generate
revenue from our Blu Vu rebreather system. We are currently exploring
additional sources of capital; however, we do not know whether additional
funding will be available on acceptable terms, or at all, especially given the
economic conditions that currently prevail. In addition, any additional
equity funding may result in significant dilution to existing stockholders, and,
if we incur additional debt financing, a substantial portion of our operating
cash flow may be dedicated to the payment of principal and interest on such
indebtedness, thus limiting funds available for our business activities.
We expect to continue to incur operating
losses in the future and to make capital expenditures to expand our polyurethane
operations and to market our Blu Vu rebreather system (including upgrading our
plant equipment) and to scale up our sales efforts. We expect that our
existing cash will be used to fund working capital and for capital expenditures
and other general corporate purposes, including the repayment of debt incurred
as a result of our acquisitions. Although since September 30, 2010, we
have raised gross proceeds of $127,500 through the sale of convertible
promissory notes, we anticipate that our cash on hand (including the proceeds
from these promissory notes) and cash generated through our operations will not
be sufficient to fund our operations for the next 12 months. In addition
we will have to repay the outstanding notes plus interest. We therefore
anticipate raising additional funds in the near future.
Sources of Liquidity
Since our inception substantially all of
our operations have been financed primarily from sales of our polyurethane
products and equity and debt financings. For the three months ended
December 31, 2010, we had received $77,500 from issuance of convertible notes.
In addition, in order to decrease the cash
outflows, in November 2010, the Company issued 80 million shares of its common
stock valued at $60,000 to the President of its subsidiary, Elasco, as a payment
of a bonus of $10,000 and prepayment of salary of $50,000 for the following six
months.
For the nine months ended September 30,
2010, we had received $175,500 from issuance of convertible notes.
Cash Flows
Net cash used in operating activities was
$7,985 for the three months ended December 31, 2010, compared to $61,182 for the
same period ended December 31, 2009. The decrease in cash used of $53,197
was primarily attributable to increases in our polyurethane product sales.
There was no net cash used in investing
activities for the three months ended December 31, 2010 and 2009.
Net cash proceeds from financing activities
for the three months ended December 31, 2010, were $41,994 which was primarily
derived from the issuance of convertible notes and the paydown of the line of
credit.
For the three months ended December 31,
2009, proceeds from sales of common stocks were $65,000, net of offering costs,
through a Regulation S offering.
Net cash used in operating activities was $214,140 for
the nine months ended September 30, 2010, compared to $615,401 for the same
period ended September 30, 2009. The decrease in cash used of $401,261 was
primarily attributable to increases in our polyurethane product sales.
There was no net cash used in investing activities for
the nine months ended September 30, 2010 and 2009.
Net cash proceeds from financing activities
for the nine months ended September 30, 2010, were $186,006 which was primarily
derived from borrowing from certain shareholders by issuance of convertible
notes.
For the nine months ended September 30,
2009, proceeds from sales of common stocks were $605,222, net of offering costs,
through a Regulation S offering.
11
Contractual
Obligations and Commercial Commitments
As of December 31, 2010, we have a contractual obligation
to pay the line of credit of $100,000 with an interest rate of prime plus 1.5%.
There was also a total remaining balance on two promissory notes of
$1,095,110 due to a shareholder and officer in connection with our acquisitions.
The notes bear interests at a rate of 5.0% and 4.23% per annum,
respectively. Our total lease obligations are $ 315,381 for our Southern
California facility, which expires on December 31, 2015.
As of September 30, 2010, we have a contractual
obligation to pay the line of credit of $125,000 with an interest rate of prime
plus 1.5%. There was also a total remaining balance on two promissory
notes of $1,095,110 due to a shareholder and officer in connection with our
acquisitions. The notes bear interests at a rate of 5% and 4.23% per
annum, respectively. Our total lease obligations are $ 348,579 for our
Southern California facility, which expires on December 31, 2015.
Income Taxes
Since inception, we have incurred operating
losses and, accordingly, have not recorded a provision for federal income taxes
for any periods presented. As of December 31, 2010, we had net operating
loss carryforwards for federal income tax purposes of $386,000. As of
September 30, 2010, we had net operating loss carryforwards for federal income
tax purposes of $262,000. If not utilized, the federal net operating loss
carryforwards will expire in 2025. Utilization of net operating loss and
credit carryforwards may be subject to a substantial annual limitation due to
restrictions contained in the Internal Revenue Code that are applicable if we
experience an ownership change. The annual limitation may result in the
expiration of our net operating loss and tax credit carryforwards before they
can be used.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements or financing
activities with special purpose entities.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
On June 30, 2010, the Board of Directors
appointed Cacciamatta Accountancy Corporation (Cacciamatta) as Deltron, Inc.s
independent auditors for the 2010 fiscal year, replacing Seale & Beers, CPAs
(Seale & Beers).
On June 30, 2010, the Company dismissed
Seale & Beers as the Companys independent auditor effective June 30, 2010.
The report of Seale & Beers on the Companys consolidated financial
statements for the years ended September 30, 2009 and 2008, and the quarters
ended December 31, 2009, and March 31, 2010, did not contain an adverse opinion
or a disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope, or accounting principles, except that such reports on our financial
statements contained an explanatory paragraph with respect to uncertainty as to
the Companys ability to continue as a going concern.
For the years ended September 30, 2009 and
2008, and through June 30, 2010, there have been no disagreements with Seale
& Beers on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements if not
resolved to Seale & Beers satisfaction would have caused them to make
reference to the subject matter of the disagreement in connection with their
reports. For the years ended September 30, 2009 and 2008, and through June 30,
2010, there were no
reportable events
as that term is described in Item
304(a)(1)(v) of Regulation S-K.
During the years ended September 30, 2009
and 2008, and through June 30, 2010 (the date Cacciamatta was appointed), the
Company did not consult Cacciamatta with respect to the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Companys
Consolidated Financial Statements, or any other matters or reportable events as
defined in Item 304(a)(2)(i) and (ii) of Regulation S-K.
On August 6, 2009, the Board of Directors
appointed Seale & Beers, CPAs (Seal & Beers) as Deltron, Inc.s
independent auditors for the 2009 fiscal year, replacing Moore & Associates,
Chartered (Moore).
FINANCIAL AND OTHER INFORMATION
12
C
ACCIAMATTA
ACCOUNTANCY CORPORATION
2601 MAIN STREET, SUITE 580, IRVINE CA 92614 PHONE: (949)
860-9883
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and
Stockholders of Deltron, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of
Deltron, Inc. and Subsidiary as of September 30, 2010, and the related
consolidated statements of operations, stockholders equity, and cash flows for
the nine months ended September 30, 2010. The Companys management is
responsible for these consolidated financial statements. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audit. The consolidated financial statements of Deltron, Inc. and Subsidiary as
of December 31, 2009 were audited by other auditors whose report dated March 31,
2010, on those statements included an explanatory paragraph that describes the
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern and that the Company has suffered losses from
operations and a accumulated deficit at December 31, 2009 , which raise
substantial doubt about the Companys ability to continue as a going
concern.
We conducted our audit
in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Deltron, Inc. and Subsidiary as of
September 30, 2010, and the results of its operations and its cash flows for the
nine months ended September 30, 2010, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements for the nine
months ended September 30, 2010 have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company has incurred recurring losses from operations
and negative cash flows from operating activities and has a net stockholders
deficit that raise substantial doubt about its ability to continue as a going
concern. Managements plans in regards to these matters are also described in
Note 2. The consolidated financial statements do not contain any adjustments
that might result from the outcome of these uncertainties.
|
|
/s/ Cacciamatta
Accountancy Corporation
Cacciamatta
Accountancy Corporation
|
Irvine,
California
|
January 13,
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deltron, Inc. and Subsidiary
|
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
|
|
December 31
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
$
1,852
|
|
$
29,986
|
|
|
|
Accounts
receivable, net of allowance of doubtful accounts of $2,630
|
660,395
|
|
250,993
|
|
|
|
and
$7,821 at September 30, 2010 and December 31, 2009, respectively
|
|
|
|
|
|
Inventory,
net of allowance of obsolescence of $9,795 and $9,000 at
|
|
|
|
|
|
|
September
30, 2010 and December 31, 2009, respectively
|
332,676
|
|
320,786
|
|
|
|
Loan
receivable
|
|
|
|
41,000
|
|
41,000
|
|
|
|
Prepaid
expenses and other receivables
|
|
19,826
|
|
4,632
|
|
|
Total
Current Assets
|
|
|
|
1,055,749
|
|
647,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
|
32,239
|
|
49,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
|
|
|
$
1,087,988
|
|
$
697,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' (Deficit) Equity
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Line
of credit
|
|
|
|
$
125,000
|
|
$
125,000
|
|
|
|
Bank
overdraft
|
|
|
|
10,506
|
|
-
|
|
|
|
Accounts
payable
|
|
|
|
452,318
|
|
171,274
|
|
|
|
Accrued
expenses
|
|
|
|
75,091
|
|
28,563
|
|
|
|
Income
taxes payable
|
|
|
|
1,600
|
|
-
|
|
|
|
Accrued
expenses - related parties
|
|
150,000
|
|
-
|
|
|
|
Accrued
interest - related parties
|
|
|
63,541
|
|
23,633
|
|
|
|
Convertible
notes - related parties, net of note discount of $79,333
|
96,167
|
|
-
|
|
|
|
Current
portion of long term debt - related party
|
334,587
|
|
207,925
|
|
|
Total
Current Liabilities
|
|
|
|
1,308,810
|
|
556,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable - related party, net of current portion
|
|
760,523
|
|
887,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
|
|
|
2,069,333
|
|
1,443,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
(Deficit) Equity
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value; 10,000,000,000 shares
|
|
|
|
|
|
authorized,
678,478,980 and 123,978,980 shares issued and outstanding
|
|
|
|
|
|
at
September 30, 2010 and December 31, 2009, respectively
|
678,479
|
|
123,979
|
|
|
Additional
paid-in capital
|
|
|
|
1,418,767
|
|
1,847,681
|
|
|
Accumulated
deficit
|
|
|
|
(3,078,591)
|
|
(2,718,001)
|
|
|
|
Total
Stockholders' (Deficit)
|
|
|
(981,345)
|
|
(746,341)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' (Deficit)
|
|
|
$
1,087,988
|
|
$
697,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deltron, Inc. and Subsidiary
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Sales
|
|
|
|
|
|
$2,546,606
|
|
$
1,511,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
|
|
|
|
|
2,269,102
|
|
1,364,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
|
|
|
277,504
|
|
146,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
467,036
|
|
757,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
|
|
(189,532)
|
|
(610,866)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
(149,564)
|
|
(58,948)
|
|
|
Other
income
|
|
|
|
|
-
|
|
12,500
|
|
|
Write
off of debt from subsidiary
|
|
|
|
(21,799)
|
|
-
|
|
|
Gain on
extinguishment of debt
|
|
|
|
|
-
|
|
256,750
|
|
|
Gain on
disposal of assets
|
|
|
|
1,905
|
|
-
|
|
|
Total
other income (expense)
|
|
|
|
(169,458)
|
|
210,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(358,990)
|
|
(400,564)
|
|
|
Provision
for income taxes
|
|
|
|
1,600
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
$
(360,590)
|
|
$
(400,564)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
$
(0.001)
|
|
$
(0.008)
|
|
|
|
Fully
diluted
|
|
|
|
|
$
(0.001)
|
|
$
(0.008)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common
|
|
|
|
|
|
|
|
|
stock
outstanding - basic
|
|
|
|
377,870,921
|
|
49,845,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common
|
|
|
|
|
|
|
|
|
stock
outstanding - diluted
|
|
|
|
377,870,921
|
|
49,845,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deltron, Inc. and Subsidiary
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT)
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Common Stock
|
|
paid-in
|
|
Accumulated
|
|
|
|
|
|
|
Number of shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2008
|
|
14,403,074
|
|
$
14,403
|
|
$
1,911,235
|
|
$
(2,218,137)
|
|
$
(292,499)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization
in reverse acquisition
|
|
|
|
|
(624,200)
|
|
|
|
(624,200)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for cash
|
|
76,031,699
|
|
76,032
|
|
529,190
|
|
|
|
605,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
(400,564)
|
|
(400,564)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2009 (Unaudited)
|
90,434,773
|
|
90,435
|
|
1,816,225
|
|
(2,618,701)
|
|
(712,041)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for cash
|
|
33,544,207
|
|
33,544
|
|
31,456
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
(99,299)
|
|
(99,299)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2009
|
|
123,978,980
|
|
123,979
|
|
1,847,681
|
|
(2,718,001)
|
|
(746,341)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature
|
|
|
|
|
|
|
|
|
|
|
-
convertible notes payable - related parties
|
|
|
|
|
175,500
|
|
|
|
175,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization
in reverse acquisition
|
554,500,000
|
|
554,500
|
|
(604,414)
|
|
|
|
(49,914)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
(360,590)
|
|
(360,590)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2010
|
|
678,478,980
|
|
$
678,479
|
|
$
1,418,767
|
|
$
(3,078,591)
|
|
$
(981,345)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
Deltron, Inc. and Subsidiary
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
$
(360,590)
|
|
$
(400,564)
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used
|
|
|
|
|
|
in
operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
17,602
|
|
3,500
|
|
Bad
debt expense
|
|
|
|
(5,191)
|
|
|
|
Inventory
obsolescence
|
|
|
|
795
|
|
|
|
Beneficial
conversion feature
|
|
|
96,167
|
|
-
|
|
Gain
on disposal of assets
|
|
|
(1,905)
|
|
-
|
|
Write
off of debt from subsidiary
|
|
|
21,799
|
|
|
|
Gain
on extinguishment of debt
|
|
|
-
|
|
(256,750)
|
|
(Increase)
Decrease in accounts receivable
|
|
(404,211)
|
|
49,743
|
|
(Increase)
Decrease in inventory
|
|
|
(12,685)
|
|
(65,995)
|
|
(Increase)
Decrease in prepaid expenses and other receivables
|
(15,194)
|
|
(68,480)
|
|
Increase
(decrease) in accounts payable
|
|
211,237
|
|
155,157
|
|
Increase
(decrease) in accrued expenses
|
|
48,128
|
|
(32,012)
|
|
Increase
(decrease) in accrued expenses - related parties
|
150,000
|
|
-
|
|
Increase
(decrease) in accrued interest - related parties
|
39,908
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
Cash (Used) by Operating Activities
|
|
|
(214,140)
|
|
(615,401)
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
Increase
in loans receivable
|
|
|
-
|
|
-
|
|
Purchase
of equipment
|
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Investing Activities
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
-
|
|
605,222
|
|
Borrowing
on line of credit
|
|
|
-
|
|
15,000
|
|
Increase
in bank overdraft
|
|
|
10,506
|
|
-
|
|
Borrowing
on related party notes
|
|
|
175,500
|
|
-
|
|
Payments
on shareholder loans
|
|
|
-
|
|
(57,391)
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Financing Activities
|
|
186,006
|
|
562,831
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) in Cash
|
|
|
|
(28,134)
|
|
(52,570)
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - Beginning of Period
|
|
29,986
|
|
78,738
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - End of Period
|
|
$
1,852
|
|
$
26,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
Cash
paid for interest expense
|
|
|
$
6,184
|
|
$
52,594
|
|
Cash
paid for income taxes
|
|
|
$
-
|
|
$
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
Deltron, Inc. and Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2010
NOTE - ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICES
Business Description
Deltron, Inc. (the Company) is a Nevada
Corporation incorporated on September 14, 2005. It is based in Garden
Grove, California. Through May 26, 2010 the Company was in the development
stage. On May 26, 2010 the Company acquired all of the assets and liabilities of
Blu Vu Deep Oil & Gas Exploration, Inc. (Blu Vu) including its ownership
of 100% of the outstanding stock of Elasco, Inc. (Elasco) by issuance of
123,978,980 restricted shares of its common stock.
Elasco was incorporated on October 25, 1979
in the state of California. Its principal business is manufacturing and
selling of open cast molded polyurethane elastomer products such as skateboard,
roller skate, and industrial wheels.
After the acquisition of Blu Vus assets,
the Company is engaged in potential manufacture and mass-market of proprietary
breathing equipment developed specifically for the oil and gas, mining and
safety industries, and military and recreational divers. The technology is still
under development. Production and manufacture of the equipment (primarily
Closed-Circuit Rebreathers CCRs and components used for all types of
rebreathers) will be produced by the wholly-owned subsidiary, Elasco, while the
Company provides financial, operational and technical expertise.
On August 4, 2010, the Company entered into
an agreement with Radikal, AS (Radikal), the owner of intellectual property
involving rebreather technology, to purchase its intellectual property involving
said technology (the Radikal Agreement). The Radikal Agreement requires
the Company to pay a per unit fee of $35 for at least 500 units per year for 2
years, after which the obligation to Radikal will be fulfilled. The
Company is required to begin making payments in January 2012.
Pursuant to the terms of the Radikal
Agreement, Radikal has transferred all U.S. and international patent rights to
the Company. However, if the per unit fee payments are not made when due,
Radikal has the right to the return of the intellectual property
transferred.
The acquisition of Blu Vus assets and
Elasco, Inc. by the Company has been accounted for as a reverse
recapitalization. The reverse recapitalization was the acquisition of a
private operating company into a non-operating public shell corporation with
nominal net assets and is treated as a capital transaction, rather than a
business combination. As a result no goodwill is recorded. In this
situation Deltron is the legal acquirer because it acquired all of the assets
and liabilities of Blu Vu and 100% of the stock of Elasco and Elasco is the
legal acquiree because its equity interests were acquired. However, Elasco
is the acquirer and Deltron is the acquiree for accounting purposes. The
pre-acquisition financial statements of Elasco are treated as the historical
financial statements of the consolidated companies except that the equity
section and earnings per share have been retroactively restated to reflect the
reverse recapitalization.
Change in Fiscal Year End
After the reverse recapitalization, the
Company adopted the fiscal year end of Deltron, the former shell company, of
September 30 for financial reporting purposes on Form 10-K. Because Elasco is
considered the accounting acquirer and the predecessor entity for SEC reporting
purposes in the acquisition, this change in fiscal year end is deemed to be a
change in Elascos fiscal year end. These consolidated financial statements
represent the financial position of the Company as of September 30, 2010 and the
results of the Companys operations and cash flows for the transition period
from January 1, 2010 (the day after the end of Elascos previous fiscal year) to
September 30, 2010 (the end of the Companys new fiscal year). The results
of the Companys operations and cash flows for the nine months ended
September 30, 2009 are unaudited and are presented for comparison purpose.
Principles of Consolidations
The accompanying consolidated financial
statements are presented in accordance with U.S. generally accepted accounting
principles. The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Elasco. All significant intercompany
transactions have been eliminated in consolidation.
Use of Estimates
The Companys consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of the Companys
consolidated financial statements requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
related disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. On an ongoing basis, the Company evaluates
its estimates, including those related to revenue recognition, doubtful
accounts, intangible assets, and income taxes, valuation of equity and debt
instruments, contingencies and litigation. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. Accordingly, actual results may differ
significantly from these estimates under different assumptions or
conditions.
Cash and Cash Equivalents
For purposes of reporting cash flows, the
Company considers all short term debt securities purchases with a maturity of
three months or less to be cash equivalents. The Company deposits its cash with
major financial institutions and may at times exceed the federally insured limit
of $250,000. At September 30, 2010 cash did not exceed the federally
insured limit. The Company believes that the risk of loss is minimal. To
date, the Company has not experienced any losses related to cash deposits with
financial institutions. As of September 30, 2010, the Company had an overdraft
of $10,506 and cash balance of $1,852.
Accounts Receivable
The Company estimates the collectability of
customer receivables on an ongoing basis by reviewing past-due invoices and
assessing the current creditworthiness of each customer. Allowances
are provided for specific receivables deemed to be at risk for collection. As of
September 30, 2010, accounts receivable amounted to $660,395, net of allowance
of doubtful accounts of $2,630.
Inventory
Inventory consists of raw material, work in
progress, and finished goods. It is stated at the lower of cost or market
on a first in, first out (FIFO) basis. The Company also evaluates and reserves
allowance of obsolescence of its inventories.
Property and Equipment and Depreciation
Policy
Property and equipment are recorded at
cost, less accumulated depreciation. Cost of repairs and maintenance are
expensed as they are incurred. Major repairs that extend the useful life of
equipment are capitalized and depreciated over the remaining estimated useful
life. When property and equipment are sold or otherwise disposed, the related
cost and accumulated depreciation are removed from the respective accounts and
the gains or losses realized on the disposition are reflected in operations. The
Company uses the straight-line method in computing depreciation for financial
reporting purposes.
Income Taxes
The Company recognizes the tax effects of
transactions in the year in which such transactions enter into the determination
of net income, regardless of when reported for tax purposes. Deferred
taxes are provided in the financial statements under ASC 740-20 to give effect
to the resulting temporary differences which may arise from differences in the
bases of fixed assets, depreciation methods, allowances, and start-up costs
based on the income taxes expected to be payable in future years.
The Company follows the provisions of
uncertain tax positions as addressed in ASC 740-10-65-1. The Company
recognized approximately no increase in the liability for unrecognized tax
benefits. The Company has no tax position as of September 30, 2010 for
which the ultimate deductibility is highly certain but for which there is
uncertainty about such timing of such deductibility. The Company
recognizes interest accrued related to unrecognized tax benefits in interest
expense and penalties in operating expenses. No such interest or penalties
were recognized during the periods presented. The Company had no accruals
for interest and penalties at September 30, 2010. The Companys
utilization of any net operating loss carry forward may be unlikely as a result
of its continued losses.
Fair Value of Financial Instruments
The accounting standards regarding fair
value of financial instruments and related fair value measurements define
financial instruments and require disclosure of the fair value of financial
instruments held by the Company. The Company considers the carrying amount of
cash, prepaid expenses, accounts payable and accrued liabilities, to approximate
their fair values because of the short period of time between the origination of
such instruments and their expected realization.
The Company has also adopted ASC 820-10
(formerly SFAS 157, Fair Value Measurements) which defines fair value,
establishes a three-level valuation hierarchy for disclosures of fair value
measurement and enhances disclosure requirements for fair value measures. The
three levels are defined as follow:
|
|
|
|
·
|
Level 1 inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets or
liabilities in active markets.
|
|
|
|
|
·
|
Level 2 inputs to the valuation
methodology include quoted prices for similar assets and liabilities in
active markets, and inputs that are observable for the assets or
liability, either directly or indirectly, for substantially the full term
of the financial instruments.
|
|
|
|
|
·
|
Level 3 inputs to the valuation
methodology are unobservable and significant to the fair
value.
|
During the nine months ended September 30,
2010, the Company issued convertible notes totaling $175,500. As of September
30, 2010, the carrying value of these convertible notes was $96,167. The Company
used level 2 inputs for its valuation methodology and the fair value was
determined to be approximately $175,000 using cash flows discounted at relevant
market interest rates in effect at the period close since there is no observable
market price.
As of September 30, 2010, the Company also
owed two notes to Henry Larrucea, a shareholder and officer of the Company. The
total carrying amount of these notes was $1,095,110. The Company used level 2
inputs for its valuation methodology and the fair value was determined to be
approximately $1,223,000 using cash flows discounted at relevant market interest
rates in effect at the period close since there is no observable market price.
As of September 30, 2010 the Company did
not identify any other assets or liabilities that are required to be presented
on the balance sheet at fair value in accordance with ASC 820-10.
Revenue Recognition
The Company recognizes revenues through its
consolidated wholly owned subsidiary. Revenues are recognized from product sales
upon shipping, at which time title passes to the customer provided that there
are no uncertainties regarding customer acceptance, persuasive evidence of an
arrangement exists, the sales price is fixed and determinable and collectability
is deemed probable.
Advertising Costs
Advertising costs are expensed when
incurred.
Share-Based Compensation
The Company has adopted ASC 718-20
(formerly SFAS No. 123R, Share-Based Payment -revised 2004) (ASC718-20) and
related interpretations which establish the accounting for equity instruments
exchanged for employee services. Under ASC 718-20, share-based compensation cost
is measured at the grant date based on the calculated fair value of the award.
The expense is recognized over the employees requisite service period,
generally the vesting period of the award.
Segment Information
Based on the criteria established by ASC
Topic 280 Segment report (formerly SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information), the Company uses the
management approach for determining which, if any, of its products and services,
locations, customers or management structures constitute a reportable business
segment. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of any reportable segments. As of September 30, 2010, the Company
mainly
operated in two principal segments
development of the rebreather system and sales of polyurethane elastomer
products. The rebreather system is still under development and has not generated
any revenue. The following tables present summarized information by
segments:
|
|
|
|
|
|
|
|
|
Nine Months Ended September
30,
|
|
|
|
2010
|
|
|
2009 (Unaudited)
|
Revenues
|
|
|
|
|
|
|
Rebreather
|
$
|
-
|
|
$
|
-
|
|
Polyurethane
|
|
2,546,606
|
|
|
1,511,133
|
|
|
$
|
2,546,606
|
|
$
|
1,511,133
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
Rebreather
|
$
|
-
|
|
$
|
-
|
|
Polyurethane
|
|
2,269,102
|
|
|
1,364,162
|
|
|
$
|
2,269,102
|
|
$
|
1,364,162
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
Rebreather
|
$
|
-
|
|
$
|
-
|
|
Polyurethane
|
|
277,504
|
|
|
146,971
|
|
|
$
|
277,504
|
|
$
|
146,971
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
|
Rebreather
|
$
|
192,878
|
|
$
|
480,662
|
|
Polyurethane
|
|
274,158
|
|
|
277,175
|
|
|
$
|
467,036
|
|
$
|
757,837
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
|
|
|
Rebreather
|
$
|
(192,878)
|
|
$
|
(480,662)
|
|
Polyurethane
|
|
3,346
|
|
|
(130,204)
|
|
|
$
|
(189,532)
|
|
$
|
(610,866)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
Total Assets
|
|
|
|
|
|
|
Rebreather
|
$
|
42,852
|
|
$
|
44,763
|
|
Polyurethane
|
|
1,045,136
|
|
|
652,475
|
|
|
$
|
1,087,988
|
|
$
|
697,238
|
Comprehensive Income (Loss)
ASC 220-10 (formerly,
SFAS No. 130, Reporting Comprehensive Income) (ASC 220-10), requires
disclosure of all components of comprehensive income (loss) on an annual and
interim basis. Comprehensive income (loss) is defined as the change
in equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. The Companys
comprehensive income (loss) is the same as its reported net income (loss) for
the periods ended September 30, 2010 and 2009.
Basic and Diluted Loss Per Share
The Company has adopted ASC 260-10,
Earnings per Share
, (EPS) which requires presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. In the accompanying consolidated financial
statements, basic net loss per common share is computed by dividing net loss by
the weighted average number of shares of common stock outstanding during the
period. Diluted net loss per share is computed by dividing the net loss
for the period by the weighted average number of common and dilutive common
equivalent shares outstanding during the
period. For the nine months ended September 30, 2010, the Company has
excluded all common equivalent shares from the calculation of diluted net loss
per share as such securities are anti-dilutive.
Significant Recent Accounting
Pronouncements
In May 2009, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Codification Topic No. 855,
Subsequent Events. This guidance establishes general standards of accounting for
and, disclosure of, events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. It sets forth (i)
the period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, (ii) the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements and (iii) the disclosures
that an entity should make about events or transactions that occurred after the
balance sheet date. The guidance is effective for interim or annual financial
periods ending after June 15, 2009 and was adopted with no material effect on
the Company's consolidated financial statements.
In June 2009, the FASB issued Accounting
Standards Codification Topic No. 105-10, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles ("ASC
105-10"). This guidance establishes the FASB Accounting Standards Codification
(the "Codification") as the source of authoritative accounting principles
recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with U.S. GAAP. Rules
and interpretive releases of the SEC under authority of federal securities laws
are also sources of authoritative U.S. GAAP for SEC registrants. All guidance
contained in the Codification carries an equal level of authority. The
Codification superseded all existing non-SEC accounting and reporting standards.
All other non-grandfathered, non-SEC accounting literature not included in the
Codification is non-authoritative. The FASB will not issue new standards in the
form of Statements, FASB Staff Positions or Emerging Issues Task Force
Abstracts. Instead, it will issue Accounting Standards Updates ("ASUs"). The
FASB will not consider ASUs as authoritative in their own right. ASUs will serve
only to update the Codification, provide background information about the
guidance and provide the basis for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this document have
been updated for the Codification. ASC 105-10 is effective for the
financial statements issued for interim and annual periods ending after
September 15, 2009. The adoption will have no material impact on the
Companys consolidated financial statements but will require that interim and
annual filings include references to the Codification.
In June 2009, the FASB issued ASC
810-10-30, Variable Interest Entities (formerly FASB 167), regarding when and
how to determine, or re-determine, whether an entity is a variable interest
entity. In addition, FASB No. 167 replaces FIN 46Rs quantitative approach
for determining who has a controlling financial interest in a variable interest
entity with a qualitative approach. Furthermore, ASC 810-10-30 requires ongoing
assessments of whether an entity is the primary beneficiary of a variable
interest entity. ASC 810-10-30 is effective beginning January 1, 2010 and
the adoption did not have a material impact on the Companys consolidated
financial statements.
In October 2009, the FASB issued Accounting
Standards Codification Topic No. 605, Multiple-Deliverable Revenue Arrangements.
This guidance establishes a selling price hierarchy for determining the selling
price of a deliverable and expands the disclosures required for
multiple-deliverable revenue arrangements. This guidance is effective for
revenue arrangements that are entered into or are materially modified in fiscal
years beginning on or after June 15, 2010, with early adoption permitted. The
adoption did not have material impact on the Companys consolidated financial
statements.
In January 2010, the FASB issued ASU No.
2010-06 regarding fair value measurements and disclosures and improvement in the
disclosure about fair value measurements. This ASU requires
additional disclosures regarding significant transfers in and out of
Levels 1 and 2 of fair value measurements, including a description
of the reasons for the transfers. Further,
this ASU requires additional disclosures for the activity in Level 3 fair value
measurements,
requiring presentation of information
about purchases, sales, issuances, and settlements in
the reconciliation for fair value measurements.
This ASU is effective for fiscal years beginning after December 15, 2010, and
for interim periods within those fiscal years. The Company does not expect the
adoption of this ASU to have a material impact on our financial statements.
In February 2010, the FASB issued
Accounting Standards Update No. 2010-09 (ASU 2010-09) as amendments to certain
recognition and disclosure requirements. The amendments remove the requirement
for an SEC filer to disclose a date in both issued and revised financial
statements. Revised financial statements include financial statements revised as
a result of either correction of an error or retrospective application of U.S.
GAAP. Those amendments remove potential conflicts with the
SECs literature. All of the amendments in
ASU 2010-09 were effective upon issuance for interim and annual periods. The
adoption of ASU 2010-09 did not have a material impact on the
Companys consolidated financial statements.
In March 2010, the FASB issued Accounting
Standards Update (ASU) No. 2010-11, which is included in the Codification
under ASC 815, Derivatives and Hedging (ASC 815). This update
clarifies the type of embedded credit derivative that is exempt from embedded
derivative bifurcation requirements. Only an embedded credit
derivative that is related to the subordination of one financial instrument to
another qualifies for the exemption. This guidance is effective for
interim and annual reporting periods beginning January 1, 2010. The
adoption of this standard did not have a material impact on the Companys
consolidated financial statements.
NOTE 2 GOING CONCERN
The accompanying consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles applicable to a going concern, which contemplates the realization of
assets and the satisfaction of liabilities and commitments in the normal course
of business. As of September 30, 2010, the Company had a working capital deficit
of $253,061, an accumulated deficit of $3,078,591, and a net loss of $360,590
for the nine months then ended. The Companys continued operating losses
and limited capital raise substantial doubt about the Companys ability to
continue as a going concern. For the nine months ended September 30, 2010,
the Company was able to pay its obligations to vendors from fund raised through
issuance of convertible notes to certain shareholders. The Company intends on
financing its future development activities from the same sources, until such
time that funds provided by operations are sufficient to fund working capital
requirements. If adequate funds are not available, it would have a material
adverse effect on the Companys business, financial condition and/or results of
operations and may ultimately cause discontinuance of operations.
NOTE 3 INVENTORY
Inventory consisted of the following:
September
30, 2010
December 31, 2009
Raw material
$232,962
$219,372
Work in process
41,513
31,210
Finished goods
67,996
79,204
342,471
329,786
Less allowance for obsolete
inventory
(9,795
)
(9,000
)
$332,676
$320,786
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the
following:
September
30, 2010
December 31, 2009
Machinery & equipment
$237,377
$237,377
Tooling
139,138
139,138
Computer equipment
94,383
94,383
Leasehold improvements
38,720
38,720
Furniture, fixtures and office
equipment
17,033
17,033
526,651
526,651
Less accumulated
depreciation
494,412
476,810
$
32,239
$ 49,841
For the nine months ended September 30, 2010, the Company
recorded depreciation expense of $17,602.
NOTE 5 LINE OF CREDIT
The Company has entered into a line of
credit agreement with a bank. The maximum borrowing is $125,000.
Interest is calculated at prime plus 1.5% (with an interest rate floor of
6.5%) and is paid monthly. The agreement expires December 1, 2010 at which
time the entire principal balance is due. The line of credit is personally
guaranteed by the Trust of the former owner of Elasco, who is the officer and
director of the Company. The outstanding balance at both September 30,
2010 and
December 31, 2009 was $125,000 at 6.5%.
The Company renewed the agreement with the bank on December 1, 2010.
See Note 11 for details.
NOTE 6 NOTES PAYABLE RELATED PARTY
Concurrent with the sale of Elasco to Blu
Vu, the previous owner, Henry Larrucea who is the current officer and director
of the Company, agreed to exchange his outstanding demand note, with an
outstanding balance of $856,750, for a 10 year note at 5% for $600,000.
The difference of $256,750 was recorded as a gain in other income in 2009.
Total interest paid or accrued for the shareholder for the nine months
ending September 30, 2010 was $22,039 and the balance of the note as of
September 30, 2010 was $587,684. Payments have not been made on this note since
July 2009. There was $35,804 of accrued interest at September 30,
2010.
Mr. Larrucea received a promissory note for
the stock of Elasco for $540,000. The note is due in monthly payments of
$10,000 and bears interest at 4.23%. The note is secured by the stock of
Elasco. Total interest paid or accrued for the shareholder for the nine
months ending September 30, 2010 was $16,099 and the balance of the note as of
September 30, 2010 was $507,425. Payments have not been made on this note
since August 2009. There is $25,161 of accrued interest at September 30,
2010.
Both of the above notes are currently in
default due to non-payment of principal and interest. Upon default the
loans become due on demand. Mr. Larrucea has granted a waiver which waives
the default under the terms of the notes and releases the Company from any
liquidated damage provision.
The Company has two notes payable to
shareholders for $20,000 and $19,500, which it acquired under the May 26, 2010
Blu Vu asset purchase agreement. These notes are due on May 28, 2011 and
bear interest at 5.0%. Both notes are convertible into shares of the
Companys common stock at a conversion discount of 70% of the stocks bid price
but in no event shall the conversion price be less than the par value of
$0.001.
The Company has nine notes payable to
shareholders for a total of $136,000. These notes are due ranging from
September 17, 2010, to March 28, 2011, all bearing interest at 5.0%. All
nine notes are convertible into shares of the Companys common stock at a
conversion discount of 70% of the stock bid price but in no event shall the
conversion price be less than the par value of $0.001.
As of September 30, 2010, the Company had
authorized unissued common stock of 9,321,521,020 shares, which is sufficient to
cover shares to be issued upon conversion of all convertible notes.
The terms of the convertible notes payable
included beneficial conversion feature amounting to $175,500 and was recognized
as debt discount, which is to be amortized over the lives of the convertible
notes. The Company recorded amortization of such debt discount as interest
expense for an amount of $96,167 in the nine months ended September 30, 2010. As
of September 30, 2010, the total net carrying amount of these convertible notes
was $96,167.
Current maturities of the notes payable for
each of the five years ending September 30 are as follows:
|
|
|
Year
|
|
Amount
|
2011
|
$
|
510,088
|
2012
|
|
163,779
|
2013
|
|
171,275
|
2014
|
|
118,656
|
2015
|
|
62,355
|
Thereafter
|
|
244,457
|
Total
|
$
|
1,270,610
|
NOTE 7 CONCENTRATION OF CREDIT RISK
A material part of the Companys account
receivables is outstanding with five customers. The amount owed by these
customers at September 30, 2010, was $518,092, approximately 78% of the
Companys receivables. Sales to the top five customers represented 82% of
total sales for the nine months ended September 30, 2010. The amount owed
by these customers at December 31, 2009, was $176,498, approximately 70% of the
Companys receivables. Sales to these customers represented 73% of total
sales for the nine months ended September 30, 2009. Sales are concentrated in
the western United
States. For the nine months ended September
30, 2010 and 2009, the Company purchased approximately $698,000 and $410,000,
respectively, of raw material from five suppliers, which represented 59% and
62%, respectively, of the Companys total purchases. As of September 30, 2010
and December 31, 2009, amounts owed to these five suppliers were approximately
$186,000 and $30,000, which represented 41% and 17% , respectively, of the total
accounts payable.
NOTE 8 COMMITMENTS RELATED PARTIES
The Company leases a manufacturing and
office facility from a related partnership as an operating lease which expires
in 2015. This lease currently requires monthly payments of $5,533 plus
related insurance and maintenance. Rental expense under this lease for the
nine months ended September 30, 2010 was $49,797 all of which was paid to a
related party.
Future rental payments required under this
operating lease are as follows:
Year Ended
September
30,
2011
$
66,396
2012
66,396
2013
66,396
2014
66,396
2015
66,396
The Company has an employment agreement
with Jeff Bozanic to develop its re-breather technology. The agreement is
for three years starting January 1, 2010 at a cost of $10,000 per month. As of
September 30, 2010, the Company owed Mr. Bozanic $90,000.
Prior to the asset purchase agreement
between Blu Vu and Deltron, Blu Vu was in negotiations with Radikal, AS
(Radikal), the owner of intellectual property involving rebreather technology,
to purchase its intellectual property involving said technology. At that
time, Blu Vu did not own any rebreather technology. No agreement was
reached between Blu Vu and Radikal prior to the asset purchase agreement with
Deltron. On August 4, 2010, the Company entered into an agreement
with Radikal to purchase its intellectual property involving said technology
(the Radikal Agreement). The Radikal Agreement requires the Company to
pay a per unit fee of $35 for at least 500 units per year for 2 years, after
which the obligation to Radikal will be fulfilled.
Pursuant to the terms of the Radikal
Agreement, Radikal has transferred all U.S. and international patent rights to
the Company. If the per unit fee payments are not made when due, Radikal has the
right to the return of the intellectual property transferred. Payments for these
rights are not required to begin until January 2012.
NOTE 9 STOCKHOLDERS EQUITY
At December 31, 2009 the Company had
5,545,000 shares of common stock, par value $.001, outstanding. On March
10, 2010, the Corporations Board of Directors approved a one hundred-for-one
(100:1) forward split of the Corporations common stock, par value $0.001 per
share. The forward split was for shareholders of record as of the close of
business on Friday, April 30, 2010, and the market effective date for the
reverse stock split was May 3, 2010. As a result of the forward stock split, for
every one share of the Corporations old common stock shareholders received
ninety-nine additional shares of the Corporations new common stock.
Immediately following the forward split, the number of shares of the
Corporations outstanding issued common stock was increased from 5,545,000
shares to approximately 554,500,000 shares, par value $.001.
On May 26, 2010, the Company entered into
an Asset Purchase Agreement (the Agreement) with Blu Vu Deep Oil & Gas
Exploration, Inc., a Nevada corporation. Under the terms of the Agreement,
the Company purchased substantially all of the assets of Blu Vu, consisting of,
but not limited to, all stock of Blu Vus subsidiary, Elasco, Inc., certain
intellectual properties, computer programs and software, contracts, claims and
accounts receivables associated with the operation of Blu Vus business of
developing underwater deep breathing apparatus. In consideration of the
sale of the assets of Blu Vu, the shareholders of Blu Vu, received restricted
common shares of the Company totaling 123,978,980. No other
considerations were exchanged in the transaction.
As of September 30, 2010, the number of
common shares issued and outstanding was 678,478,980.
NOTE 10 INCOME TAXES
The Company recognizes deferred income tax
liabilities and assets for the expected future tax consequences of events that
have been recognized in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on the
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse.
The Company incurred no income taxes for
the periods ended September 30, 2010 and 2009 except for $800 each year for
state franchise taxes. For the nine months ended September 30, 2010 the
Company had incurred a loss and had state income taxes payable of $1,600 at
September 30, 2010. No income tax benefit was recognized as of September
30, 2010 and December 31, 2009 as a result of the valuation allowance applied to
deferred tax assets, due to the uncertainty of recognizing any future tax
benefits from the NOL.
The income tax expense consists of the
following:
|
|
|
|
|
State tax expense
|
|
$
1,600
|
|
|
|
|
|
|
Income tax expense
|
$
1,600
|
|
|
|
|
|
The Companys net loss of approximately
$170,000 will be carried forward to offset future taxable income. As of
September 30, 2010, the Companys federal NOL is approximately $262,000 expiring
in 2025, and its California NOL is approximately $171,000 expiring 2015. The
Company has book/tax differences of approximately $188,000 comprised of accrued
officers compensation of $60,000, accrued consulting of $90,000 and accrued
interest of 38,000. These differences result in a deferred tax asset of
approximately $64,000. The federal and California NOLs result in a
deferred tax asset of approximately $81,400. Due to the uncertainty of
recognizing any future benefit, the Company has recorded a valuation allowance
of $145,400 to offset the deferred tax asset. The valuation allowance
increased $122,900 from September 30, 2009, as a result of the uncertainty of
utilizing the deferred tax assets.
The deferred tax asset comprised the following at
September 30, 2010:
|
|
|
|
|
Deferred tax asset:
|
|
|
|
|
|
|
|
|
Federal benefit of NOL carryover
|
$
65,500
|
|
California benefit of NOL carryover
|
15,900
|
|
Accrued officer's compensation
|
20,400
|
|
Accrued consulting
|
30,600
|
|
Accrued interest
|
|
13,000
|
|
|
|
|
|
|
Total
|
|
|
145,400
|
|
|
|
|
|
|
Valuation allowance
|
(145,400)
|
|
|
|
|
|
|
Net deferred tax asset
|
$
-
|
NOTE 11 SUBSEQUENT EVENTS
The Company has evaluated subsequent event for purposes
of recognition or disclosure in the financial statements through the date of
issuance of its financial statements.
Subsequent to year end, the Company issued 80,000,000
shares to Elascos president as a bonus and prepaid salary over the next six
months under an Employee Stock Incentive Program (ESIP).
In October through December 2010, the
Company issued convertible notes for $35,000, $30,000 and $12,500, respectively
to one investor. These notes are due in six months and bear interest at
10%. All three notes are convertible into shares of the Companys
common stock at a conversion discount of 50% of the stock bid price, with no
floor.
On December 1, 2010, the Company renewed
its line of credit agreement with a principal amount of $100,000, which is due
on December 5, 2011. The interest rate is subject to change based on changes in
the Wall Street Journal Prime Rate but under no circumstances will the interest
rate be less than 6.5% per annum.
|
|
|
|
|
|
|
|
|
|
|
Deltron, Inc. and Subsidiary
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
September 30,
|
|
|
|
|
|
|
|
|
2010
|
|
2010
|
|
|
|
|
|
|
|
|
Unaudited
|
|
|
Assets
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
|
|
$ 35,861
|
|
$ 1,852
|
|
|
Accounts
receivable, net of allowance of doubtful accounts of $2,630
|
|
|
|
|
|
and
$2,630 at December 31, 2010 and September 30, 2010, respectively
|
418,320
|
|
660,395
|
|
|
Inventory,
net of allowance for obsolescence of $9,795 and $9,795 at
|
|
|
|
|
|
December
31, 2010 and September 30, 2010, respectively
|
|
375,900
|
|
332,676
|
|
|
Loan
receivable
|
|
41,000
|
|
41,000
|
|
|
Prepaid
expenses and other receivables
|
|
48,314
|
|
19,826
|
|
Total
Current Assets
|
|
919,395
|
|
1,055,749
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
29,389
|
|
32,239
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ 948,784
|
|
$1,087,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' (Deficit) Equity
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Line
of credit
|
|
$ 100,000
|
|
$ 125,000
|
|
|
Bank
overdraft
|
|
-
|
|
10,506
|
|
|
Accounts
payable
|
|
289,708
|
|
452,318
|
|
|
Accrued
expenses
|
|
52,969
|
|
75,091
|
|
|
Income
taxes payable
|
|
800
|
|
1,600
|
|
|
Accrued
expenses - related parties
|
|
180,000
|
|
150,000
|
|
|
Accrued
interest - related parties
|
|
79,826
|
|
63,541
|
|
|
Convertible
notes - related parties, net of note discount of $20,304
|
|
|
|
|
|
and
$79,333 at December 31, 2010 and September 30, 2010, respectively
|
155,196
|
|
96,167
|
|
|
Convertible
notes - net of note discount of $43,695
|
|
|
|
|
|
and
$0 at December 31, 2010 and September 30, 2010, respectively
|
33,805
|
|
-
|
|
|
Derivative
liability conversion options
|
65,874
|
|
-
|
|
|
Current
portion of long term debt - related party
|
|
374,848
|
|
334,587
|
|
Total
Current Liabilities
|
|
1,333,026
|
|
1,308,810
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable - related party, net of current portion
|
|
720,262
|
|
760,523
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
2,053,288
|
|
2,069,333
|
Stockholders'
(Deficit) Equity
|
|
|
|
|
|
Common
stock, $0.001 par value; 10,000,000,000 shares
|
|
|
|
|
|
authorized,
758,478,980 and 678,478,980 shares issued and outstanding
|
|
|
|
|
at
December 31, 2010 and September 30, 2010, respectively
|
758,479
|
|
678,479
|
|
Additional
paid-in capital
|
|
1,398,767
|
|
1,418,767
|
|
Accumulated
deficit
|
|
(3,261,750)
|
|
(3,078,591)
|
|
|
Total
Stockholders' (Deficit) Equity
|
|
(1,104,504)
|
|
(981,345)
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' (Deficit) Equity
|
|
$ 948,784
|
|
$1,087,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
Deltron, Inc. and Subsidiary
|
|
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three Months ended
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
905,401
|
|
$
511,556
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
|
778,016
|
|
435,062
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
127,385
|
|
76,494
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
210,480
|
|
161,231
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
(83,095)
|
|
(84,737)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses)
|
|
|
|
|
|
Change
in fair value of derivative liability
|
(6,854)
|
|
-
|
|
Interest
expense, net
|
|
(92,375)
|
|
(14,562)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
(99,229)
|
|
(14,562)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
(182,324)
|
|
(99,299)
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
835
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
(183,159)
|
|
$
(99,299)
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share
|
|
|
|
|
|
|
Basic
|
|
$
(0.000)
|
|
$
(0.001)
|
|
|
Fully
diluted
|
|
$
(0.000)
|
|
$
(0.001)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common
|
|
|
|
|
|
|
stock
outstanding - basic
|
|
718,478,980
|
|
107,206,877
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common
|
|
|
|
|
|
|
stock
outstanding - diluted
|
|
718,478,980
|
|
107,206,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deltron, Inc. and Subsidiary
|
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S
(DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Common Stock
|
|
paid-in
|
|
Accumulated
|
|
|
|
|
|
|
Number of shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2008
|
|
14,403,074
|
|
$
14,403
|
|
$1,911,235
|
|
$(2,218,137)
|
|
$
(292,499)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization
in reverse acquisition
|
|
|
|
|
(624,200)
|
|
|
|
(624,200)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for cash
|
|
76,031,699
|
|
76,032
|
|
529,190
|
|
|
|
605,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
(400,564)
|
|
(400,564)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2009 (Unaudited)
|
90,434,773
|
|
90,435
|
|
1,816,225
|
|
(2,618,701)
|
|
$
(712,041)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for cash
|
|
33,544,207
|
|
33,544
|
|
31,456
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
(99,299)
|
|
(99,299)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2009
|
|
123,978,980
|
|
123,979
|
|
1,847,681
|
|
(2,718,001)
|
|
(746,341)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature
|
|
|
|
|
|
|
|
|
|
|
-
convertible notes payable - related parties
|
-
|
|
-
|
|
175,500
|
|
-
|
|
175,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization
in reverse acquisition
|
554,500,000
|
|
554,500
|
|
(604,414)
|
|
-
|
|
(49,914)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
-
|
|
-
|
|
-
|
|
(360,590)
|
|
(360,590)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2010
|
|
678,478,980
|
|
$678,479
|
|
$1,418,767
|
|
$(3,078,591)
|
|
$
(981,345)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for service
|
80,000,000
|
|
80,000
|
|
(20,000)
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
(183,159)
|
|
(183,159)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2010 (Unaudited)
|
758,478,980
|
|
$758,479
|
|
$1,398,767
|
|
$(3,261,750)
|
|
$(1,104,504)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
Deltron, Inc. and Subsidiary
|
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three Months ended
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
Net
(loss)
|
|
$
(183,159)
|
|
$
(99,299)
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used
|
|
|
|
|
|
in
operating activities:
|
|
|
|
|
|
Depreciation
|
|
2,850
|
|
2,500
|
|
Change
in fair value of derivative liability
|
|
6,854
|
|
-
|
|
amortization
of discount on note payable
|
|
74,354
|
|
-
|
|
(Increase)
Decrease in accounts receivable
|
|
242,075
|
|
102,779
|
|
(Increase)
Decrease in inventory
|
|
(43,224)
|
|
(13,999)
|
|
(Increase)
Decrease in prepaid expenses and other receivables
|
|
31,512
|
|
27,480
|
|
Increase
(decrease) in accounts payable
|
|
(162,610)
|
|
(51,990)
|
|
Increase
(decrease) in accrued expenses
|
|
(22,922)
|
|
(41,366)
|
|
Increase
(decrease) in accrued expenses - related parties
|
30,000
|
|
-
|
|
Increase
(decrease) in accrued interest - related parties
|
16,285
|
|
12,713
|
|
|
|
|
|
|
|
|
|
|
Net
Cash (Used) by Operating Activities
|
|
(7,985)
|
|
(61,182)
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Investing Activities
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
-
|
|
65,000
|
|
Decrease
in bank overdraft
|
|
(10,506)
|
|
-
|
|
Borrowing
on related party notes
|
|
77,500
|
|
-
|
|
Payments
on line of credit
|
|
(25,000)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Financing Activities
|
|
41,994
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
Net
Increase (decrease) in Cash
|
|
34,009
|
|
3,818
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - Beginning of Period
|
|
1,852
|
|
26,168
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - End of Period
|
|
$
35,861
|
|
$
29,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
Cash
paid for interest expense
|
|
$
2,054
|
|
-
|
|
Cash
paid for income taxes
|
|
$
800
|
|
$
-
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
In
November 2010, the Company issued 80,000,000 shares of its common stock
valued at $60,000
|
to
Elasco's president, $10,000 was recorded as a bonus and $50,000 is prepaid
salary to be
|
expensed
over six months beginning mid November 2010.
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
|
|
Deltron, Inc. & Subsidiary.
Notes to Unaudited Condensed Consolidated
Financial Statements
December 31, 2010
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICES
Business Description
Deltron, Inc. (the Company) is a Nevada
Corporation incorporated on September 14, 2005. It is based in Garden
Grove, California. Through May 26, 2010 the Company was in the development
stage. On May 26, 2010 the Company acquired all of the assets and liabilities of
Blu Vu Deep Oil & Gas Exploration, Inc. including its ownership of 100% of
the outstanding stock of Elasco, Inc. by issuance of 123,978,980 restricted
common shares of its stock.
Elasco was incorporated on October 25, 1979
in the state of California. Its principal business is manufacturing and
selling of open cast molded polyurethane elastomer products such as skateboard,
roller skate, and industrial wheels.
After the acquisition of Blu Vus assets,
the Company is engaged in potential manufacture and mass-market of proprietary
breathing equipment developed specifically for the oil and gas, mining and
safety industries, and military and recreational divers. The technology is still
under development. Production and manufacture of the equipment (primarily
Closed-Circuit Rebreathers CCRs and components used for all types of
rebreathers) will be produced by the wholly-owned subsidiary, Elasco, while the
Company provides financial, operational and technical expertise.
On August 4, 2010, Deltron entered into an
agreement with Radikal, AS (Radikal), the owner of intellectual property
involving rebreather technology, to purchase its intellectual property involving
said technology (the Radikal Agreement). The Radikal Agreement requires
the Company to pay a per unit fee of $35 for at least 500 units per year for 2
years, after which the obligation to Radikal will be fulfilled. The Company is
required to begin making payments in January 2012.
Pursuant to the terms of the Radikal
Agreement, Radikal has transferred all U.S. and international patent rights to
the Company. However, if the per unit fee payments are not made when due,
Radikal has the right to the return of the intellectual property
transferred.
The acquisition of Blu Vus assets and
Elasco, Inc. by the Company has been accounted for as a reverse capitalization.
The reverse recapitalization was the acquisition of a private operating
company into a non-operating shell corporation with nominal net assets and is
treated as a capital transaction, rather than a business combination. As a
result no goodwill is recorded. In this situation Deltron is the legal
acquirer because it acquired all of the assets and liabilities of Blu Vu and
100% of the stock of Elasco and Elasco is the legal acquiree because its equity
interests were acquired. However, Elasco is the acquirer and Deltron is
the acquiree for accounting purposes. The pre-acquisition financial
statements of Elasco are treated as the historical financial statements of the
consolidated companies except that the equity section and earnings per share
have been retroactively restated to reflect the reverse recapitalization.
Principles of consolidations
The accompanying unaudited condensed
consolidated financial statements are presented in accordance with U.S generally
accepted accounting principles. The unaudited consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary, Elasco.
All significant intercompany transactions have been eliminated in
consolidation.
Interim Periods
The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information required by accounting principles
generally accepted in the United States of America for annual financial
statements. In the opinion of the Companys management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three months
ended December 31, 2010 are not necessarily indicative of results for any future
period. These statements should be read in conjunction with the
consolidated financial statements and notes for the year ended September 30,
2010 thereto included in the Companys Form 10-K filed on January 13, 2010.
Use of Estimates
The Companys unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of the Companys consolidated financial statements requires the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the related disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances.
Accordingly, actual results may differ significantly from these estimates under
different assumptions or conditions.
Cash and Cash Equivalents
For purposes of reporting cash flows, the
Company considers all short term debt securities purchases with a maturity of
three months or less to be cash equivalents. The Company deposits its cash with
major financial institutions and may at times exceed the federally insured limit
of $250,000. At December 31, 2010 cash did not exceed the federally
insured limit. The Company believes that the risk of loss is minimal. To
date, the Company has not experienced any losses related to cash deposits with
financial institutions. As of December 31, 2010, the Company had a cash balance
of $35,861.
Accounts Receivable
The Company estimates the collectability of
customer receivables on an ongoing basis by reviewing past-due invoices and
assessing the current creditworthiness of each customer. Allowances
are provided for specific receivables deemed to be at risk for collection. As of
December 31, 2010, accounts receivable amounted to $418,320, net of allowance of
doubtful accounts of $2,630.
Inventory
Inventory consists of raw material, work in
progress, and finished goods. It is stated at the lower of cost or market
on a first in, first out (FIFO) basis. The Company also evaluates and reserves
allowance of obsolescence of its inventories.
Property and Equipment and Depreciation Policy
Property and equipment are recorded at
cost, less accumulated depreciation. Cost of repairs and maintenance are
expensed as they are incurred. Major repairs that extend the useful life of
equipment are capitalized and depreciated over the remaining estimated useful
life. When property and equipment are sold or otherwise disposed, the related
cost and accumulated depreciation are removed from the respective accounts and
the gains or losses realized on the disposition are reflected in operations. The
Company uses the straight - line method in computing depreciation for financial
reporting purposes.
Income Taxes
The Company recognizes the tax effects of
transactions in the year in which such transactions enter into the determination
of net income, regardless of when reported for tax purposes. Deferred
taxes are provided in the financial statements under ASC 740-20 to give effect
to the resulting temporary differences which may arise from differences in the
bases of fixed assets, depreciation methods, allowances, and start-up costs
based on the income taxes expected to be payable in future years.
The Company follows the provisions of
uncertain tax positions as addressed in ASC 740-10-65-1. The Company
recognized approximately no increase in the liability for unrecognized tax
benefits. The Company has no tax position as of December 31, 2010 for
which the ultimate deductibility is highly certain but for which there is
uncertainty about such timing of such deductibility. The Company
recognizes interest accrued related to unrecognized tax benefits in interest
expense and penalties in operating expenses. No such interest or penalties
were recognized during the periods presented. The Company had no accruals
for interest and penalties at December 31, 2010. The Companys utilization
of any net operating loss carry forward may be unlikely as a result of its
continued losses.
Fair Value of Financial Instruments
The accounting standards regarding fair
value of financial instruments and related fair value measurements defines
financial instruments and requires disclosure of the fair value of financial
instruments held by the Company. The Company considers
the carrying amount of cash, prepaid
expenses, accounts payable and accrued liabilities, to approximate their fair
values because of the short period of time between the origination of such
instruments and their expected realization.
The Company has also adopted ASC 820-10
(formerly SFAS 157, Fair Value Measurements) which defines fair value,
establishes a three-level valuation hierarchy for disclosures of fair value
measurement and enhances disclosure requirements for fair value measures. The
three levels are defined as follow:
|
|
|
|
·
|
Level 1 inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets or
liabilities in active markets.
|
|
·
|
Level 2 inputs to the valuation
methodology include quoted prices for similar assets and liabilities in
active markets, and inputs that are observable for the assets or
liability, either directly or indirectly, for substantially the full term
of the financial instruments.
|
|
·
|
Level 3 inputs to the valuation
methodology are unobservable and significant to the fair
value.
|
As of December 31, 2010, the Company used level 3 inputs
for its valuation methodology for the fair value of its notes payable and
derivative liability as following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
Fair Value Measurements at
|
|
|
As of
|
|
December 31, 2010
|
|
|
December 31,
|
|
Using Fair Value Hierarchy
|
|
|
2010
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Liabilities
|
|
|
|
|
|
|
|
|
Notes payable
related party
|
|
1,095,110
|
|
|
-
|
|
|
-
|
|
|
1,219,900
|
Convertible notes
related parties
|
|
155,196
|
|
|
-
|
|
|
-
|
|
|
177,600
|
Convertible
notes
|
|
|
33,805
|
|
|
|
|
|
|
|
|
81,300
|
Derivative
liability conversion options
|
|
65,874
|
|
|
-
|
|
|
-
|
|
|
65,874
|
Total
|
|
$
|
1,349,985
|
|
$
|
-
|
|
$
|
|
|
$
|
1,544,674
|
As of December 31, 2010 the Company did not identify any
other assets or liabilities that are required to be presented on the balance
sheet at fair value in accordance with ASC 820-10.
Revenue Recognition
The Company recognizes revenues through its
consolidated fully owned subsidiary. Revenues are recognized from product sales
upon delivery, at which time title passes to the customer provided that there
are no uncertainties regarding customer acceptance, persuasive evidence of an
arrangement exists, the sales price is fixed and determinable and collectability
is deemed probable.
Advertising Costs
Advertising costs are charged to operations when
incurred.
Share-Based Compensation
The Company has adopted ASC 718-20
(formerly SFAS No. 123R, Share-Based Payment -revised 2004) (ASC718-20) and
related interpretations which establish the accounting for equity instruments
exchanged for employee services. Under ASC 718-20, share-based compensation cost
is measured at the grant date based on the calculated fair value of the award.
The expense is recognized over the employees requisite service period,
generally the vesting period of the award.
Segment Information
Based on the criteria established by ASC
Topic 280 Segment report (formerly SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information), the Company uses the
management approach for determining which, if any, of its products and services,
locations, customers or management structures constitute a reportable business
segment. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of any reportable segments. As of December 31, 2010, the Company
mainly operated in two principal segments development of the rebreather system
and sales of polyurethane elastomer products.
The rebreather system is still under
development and has not generated any revenue. The following tables present
summarized information by segments:
|
|
|
|
|
|
|
|
|
Three Months
Ended December 31,
|
|
|
2010
|
|
2009
|
Revenues
|
|
|
|
|
|
|
Rebreather
|
$
|
-
|
|
$
|
-
|
|
Polyurethane
|
905,401
|
|
|
511,556
|
|
|
$
|
905,401
|
|
$
|
511,556
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
Rebreather
|
$
|
-
|
|
$
|
-
|
|
Polyurethane
|
778,016
|
|
|
435,062
|
|
|
$
|
778,016
|
|
$
|
435,062
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
Rebreather
|
$
|
-
|
|
$
|
-
|
|
Polyurethane
|
127,385
|
|
|
76,494
|
|
|
$
|
127,385
|
|
$
|
76,494
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
Rebreather
|
$
|
104,973
|
|
$
|
71,046
|
|
Polyurethane
|
105,507
|
|
|
90,185
|
|
|
$
|
210,480
|
|
$
|
161,231
|
|
|
|
|
|
|
|
Income / (Loss) from
operations
|
|
|
|
|
Rebreather
|
$
|
(104,973)
|
|
$
|
(71,046)
|
|
Polyurethane
|
21,878
|
|
|
(13,691)
|
|
|
$
|
(83,095)
|
|
$
|
(84,737)
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
September
30,
|
|
|
|
2010
|
|
|
2010
|
Total Assets
|
|
|
|
|
|
|
Rebreather
|
$
|
77,374
|
|
$
|
42,852
|
|
Polyurethane
|
871,410
|
|
|
1,045,136
|
|
|
$
|
948,784
|
|
$
|
1,087,988
|
Comprehensive Income (Loss)
ASC 220-10 (formerly, SFAS No. 130,
Reporting Comprehensive Income) (ASC 220-10), requires disclosure of all
components of comprehensive income (loss) on an annual and interim
basis. Comprehensive income (loss) is defined as the change in equity
of a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. The Companys comprehensive
income (loss) is the same as its reported net income (loss) for the three months
ended December 31, 2010 and 2009.
Basic and Diluted Per Common Share
The Company has adopted ASC 260-10,
Earnings per Share
, (EPS) which requires presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. In the accompanying unaudited condensed
consolidated financial statements, basic net loss per common share is computed
by dividing net loss by the weighted average number of shares of common stock
outstanding during the period. Diluted net loss per share is computed by
dividing the net loss for the period by the weighted average number of common
and dilutive common equivalent shares outstanding during the period. For
the three months ended December 31, 2010, the Company has
excluded all common equivalent shares from
the calculation of diluted net loss per share as such securities are
anti-dilutive. For the three months ended December 31, 2009, the Company did not
have common equivalent shares.
Significant Recent Accounting Pronouncements
In October 2009, the FASB issued Accounting
Standards Codification Topic No. 605, Multiple-Deliverable Revenue Arrangements.
This guidance establishes a selling price hierarchy for determining the selling
price of a deliverable and expands the disclosures required for
multiple-deliverable revenue arrangements. This guidance is effective for
revenue arrangements that are entered into or are materially modified in fiscal
years beginning on or after June 15, 2010, with early adoption permitted. The
adoption will have no material impact on the Companys financial statements.
In January 2010, the FASB issued ASU No.
2010-06 regarding fair value measurements and disclosures and improvement
in the disclosure about fair value measurements. This ASU requires
additional disclosures regarding significant transfers in and out of Levels 1
and 2 of fair value measurements, including a description of the reasons for the
transfers. Further, this ASU requires additional disclosures for the
activity in Level 3 fair value measurements, requiring presentation of
information about purchases, sales, issuances, and settlements in the
reconciliation for fair value measurements. This ASU is effective for
fiscal years beginning after December 15, 2010, and for interim periods within
those fiscal years. The Company does not expect the adoption of this ASU
to have a material impact on our financial statements.
In February 2010, the FASB issued
Accounting Standards Update No. 2010-09 (ASU 2010-09) as amendments to certain
recognition and disclosure requirements. The amendments remove the requirement
for an SEC filer to disclose a date in both issued and revised financial
statements. Revised financial statements include financial statements revised as
a result of either correction of an error or retrospective application of U.S.
GAAP. Those amendments remove potential conflicts with the SECs literature. All
of the amendments in ASU 2010-09 were effective upon issuance for interim and
annual periods. The adoption of ASU 2010-09 did not have a material
impact on the Companys consolidated financial statements
In March 2010, the FASB issued Accounting
Standards Update (ASU) No. 2010-11, which is included in the Codification
under ASC 815, Derivatives and Hedging (ASC 815). This update
clarifies the type of embedded credit derivative that is exempt from embedded
derivative bifurcation requirements. Only an embedded credit derivative
that is related to the subordination of one financial instrument to another
qualifies for the exemption. This guidance is effective for interim and
annual reporting periods beginning January 1, 2010. The adoption of this
standard did not have a material impact on the Companys consolidated financial
statements.
NOTE 2 GOING CONCERN
The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. As of December 31, 2010 the
company had a net deficit in retained earnings of $(3,261,750) and a net loss of
$(183,159) for the quarter then ended. These matters create substantial
doubt about the Companys ability to continue as a going concern. For the
quarter ended December 31, 2010, the Company is able to pay its obligations to
vendors from funds raised from issuance of convertible notes. The Company
intends on financing its future development activities from the same sources,
until such time that funds provided by operations are sufficient to fund working
capital requirements.
NOTE 3 INVENTORY
Inventory consisted of the following at December 31, 2010
and September 30, 2010.
|
|
|
|
|
December 31, 2010
|
|
September 30, 2010
|
|
|
|
|
Raw material
|
$
231,879
|
|
$
232,962
|
Work in process
|
40,226
|
|
41,513
|
Finished goods
|
113,590
|
|
67,996
|
|
385,695
|
|
342,471
|
Less allowance for obsolete inventory
|
(9,795)
|
|
(9,795)
|
|
|
|
|
|
$
375,900
|
|
$
332,676
|
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at
December 31, 2010 and September 30, 2010.
|
|
|
|
|
December 31, 2010
|
|
September 30, 2010
|
Machinery & equipment
|
$
237,377
|
|
$
237,377
|
Tooling
|
139,138
|
|
139,138
|
Computer equipment
|
94,383
|
|
94,383
|
Leasehold improvements
|
38,720
|
|
38,720
|
Furniture, fixtures and office equipment
|
17,033
|
|
17,033
|
|
526,651
|
|
526,651
|
Less accumulated depreciation
|
497,262
|
|
494,412
|
|
|
|
|
|
$
29,389
|
|
$
32,239
|
NOTE 5 LINE OF CREDIT
The Company has entered into a line of
credit agreement with a bank. The maximum borrowing is $100,000.
Interest is calculated at prime plus 1.5% (with an interest rate floor of
6.5%) and is paid monthly. The agreement expires December 5, 2011 at which
time the entire principal balance is due. The line of credit is personally
guaranteed by the Trust of the former owner of Elasco, who is the president of
the Company. The outstanding balance at December 31, 2010 and September
30, 2010 is $100,000 and $125,000, respectively, at 6.5%.
NOTE 6 NOTES PAYABLE RELATED PARTIES
Concurrent with the sale of Elasco to Blu
Vu, the previous owner, Henry Larrucea,who is the current officer and director
of the Company, agreed to exchange his outstanding demand note, with an
outstanding balance of $856,750, for a 10 year note at 5% for $600,000.
The difference of $256,750 was recorded as a gain in other income in the
year ended September 30, 2009. Total interest paid or accrued for the
shareholder for the three months ending December 31, 2010 was $7,347 and the
balance of the note as of December 31, 2010 was $587,684. Payments have not been
made on this note since July 2009. There was $43,151 of accrued interest
at December 31, 2010.
Mr. Larrucea also received a promissory
note for the stock of Elasco for $540,000. The note is due in monthly
payments of $10,000 and bears interest at 4.23%. The note is secured by
the stock of Elasco. Total interest paid or accrued for the three months
ending December 31, 2010 was $5,367 and the balance of the note as of December
31, 2010 was $507,425. Payments have not been made on this note since
August 2009. There was $30,528 of accrued interest at December 31,
2010.
Both of these notes are currently in
default due to non-payment of principal and interest. Upon default the
loans become due on demand. Mr. Larrucea has granted a waiver which waives
the default under the terms of the notes and releases the company from
liquidated damages provision.
The Company has two notes payable to
shareholders for $20,000 and $19,500, which it acquired under the May 26 Blu Vu
asset purchase agreement. These notes are due on May 28, 2011 and bear
interest at 5.0%. Both notes are convertible into shares of the Companys
common stock at a conversion discount of 70% of the stocks bid price but in no
event shall the conversion price be less than par value of $0.001.
The Company has nine notes payable to
shareholders for a total of $136,000. These notes are due ranging from
September 17, 2010 to March 28, 2011 all bearing interest at 5.0%. All
nine notes are convertible into shares of the Companys common stock at a
conversion discount of 70% of the stocks bid price but in no event shall the
conversion price be less than par value of $0.001.
As of December 31, 2010, the Company had
authorized unissued common stock of 9,241,521,020 shares, which is sufficient to
cover shares to be issued upon conversion of all convertible notes.
Current maturities of the notes payable for each of the
five years ending September 30 are as follows:
|
|
|
Year
|
|
Amount
|
2011
|
$
|
546,442
|
2012
|
|
163,779
|
2013
|
|
171,275
|
2014
|
|
118,656
|
2015
|
|
62,355
|
Thereafter
|
|
208,103
|
Total
|
$
|
1,270,610
|
NOTE 7 CONVERTIBLE NOTES PAYABLE
In October, November and December 2010, the
Company entered into securities purchase agreements (the Purchase Agreements)
with an investor and issued three 10% convertible promissory notes with face
amounts of $35,000, $30,000 and $12,500 respectively (the Convertible
Notes) and received cash proceeds of $77,500. The Notes mature in eight
months from the date of issuance, and provide for nominal interest at the rate
of ten (10%) percent per annum. The Notes may be converted into unregistered
shares of the Companys common stock, par value $0.001 per share (the Common
Stock), at the Conversion Price, as defined below, in whole, or in part, at any
time beginning 180 days after the date of the Notes, at the option of the
holder. The Conversion Price shall be equal to 50% multiplied by the Variable
Conversion Rate which is equal to the average of the three (3) lowest closing
bid prices of the Common Stock during the ten (10) trading day period prior to
the date of conversion. The 50% discounted Conversion Price establishes a
conversion feature which is required to be treated as a derivative liability and
presented at fair value. The derivative obligation arises because, based on
historical trading patterns of the Companys stock, the formula for determining
the Conversion Rate is expected to result in a lower Conversion Rate than the
closing price of the stock on the actual date of conversion (hereinafter
referred to as the Variable Conversion Rate Differential). The Company
selected the historical simulation approach to value this derivative liability
believing that this method results in a valuation that most closely relates to
the economic reality of these transactions. Under this approach, the Company
computed the Variable Conversion Rate Differential for each trading day during
the twelve month period prior to the date of issuance of each convertible
promissory note and then computed the average of these daily Variable Conversion
Rate Differentials over the twelve month period. In accordance with GAAP, the
derivative liability is required to be re-evaluated at each balance sheet date.
The total unamortized discount represented by the value of the conversion
feature and the derivative liability is being accreted over the eight month
period until the conversion of the convertible promissory notes into common
stock is permitted. This results in an overall effective interest rate of 83% on
the $77,500 convertible notes. Accordingly, on issuance date, the Company
recorded derivative liability and discount on the Convertible Notes of $59,020.
For the three month period ended December 31, 2010, the amount of interest
expense resulting from accretion of the unamortized discount on the convertible
promissory notes amounted to $15,325. The remaining unamortized balance of
this discount, which amounted to $43,695, has been netted against the face
amount of the convertible promissory notes resulting in a net carrying amount of
$33,805 which is included in the accompanying balance sheet at December 31,
2010. As of December 31, fair value of the derivative liability was $65,874 and
the change in fair value of $6,854 was recorded against income for the quarter
ended December 31, 2010.
NOTE 8 CONCENTRATION OF CREDIT
RISK
A material part of the Companys account
receivables is outstanding with five customers. The amount owed by these
customers at December 31, 2010 was $344,131, approximately 82% of the Companys
receivables. Sales to the top five customers represented 79% of total
sales. The amount owed by these customers at September 30, 2010 was
$518,092, approximately 78% of the Companys receivables. Sales to these
five customers represented 76% of total sales for the quarter ended December 31,
2009. Sales are concentrated in the western United States.
For the three months ended December 31,
2010 and 2009, the Company purchased approximately $324,808 and 115,166,
respectively, of raw material from five suppliers, representing 80% and 71%,
respectively, of the Companys total purchases. As of December 31, 2010 and
September 30, 2010, amounts owed to these five suppliers were approximately
$233,284 and $186,000 representing 80% and 41%, respectively, of the total
accounts payable.
NOTE 9 COMMITMENTS RELATED PARTIES
The Company leases a manufacturing and
office facility from a related partnership as an operating lease which expires
in 2015. This lease currently requires monthly payments of $5,533 plus
related insurance and maintenance. Rental expense under this lease for the
three months ended December 31, 2010 was $16,599 all of which was paid to a
related party.
Future rental payments required under this operating
lease are as follows:
Year Ended
September
30,
2011
$ 49,797
2012
66,396
2013
66,396
2014
66,396
2015
66,396
The Company has an employment agreement
with Jeff Bozanic to develop its re-breather technology. The agreement is
for three years starting January 1, 2010 at a cost of $10,000 per month. As of
December 31, 2010, the Company owed Mr. Bozanic $120,000.
Prior to the asset purchase agreement
between Blu Vu and Deltron, Blu Vu was in negotiations with Radikal, AS
(Radikal), the owner of intellectual property involving rebreather technology,
to purchase its intellectual property involving said technology. At that
time, Blu Vu did not own any rebreather technology. No agreement was
reached between Blu Vu and Radikal prior to the asset purchase agreement with
Deltron. On August 4, 2010, the Company entered into an agreement
with Radikal to purchase its intellectual property involving said technology
(the Radikal Agreement). The Radikal Agreement requires the Company to
pay a per unit fee of $35 for at least 500 units per year for 2 years, after
which the obligation to Radikal will be fulfilled.
Pursuant to the terms of the Radikal
Agreement, Radikal has transferred all U.S. and international patent rights to
the Company. If the per unit fee payments are not made when due, Radikal has the
right to the return of the intellectual property transferred. Payments for these
rights are not required to begin until January 2012.
NOTE 10 STOCK HOLDER EQUITY
At December 31, 2009 the Company had
5,545,000 shares of common stock, par value $.001, outstanding. On March
10, 2010, the Corporations Board of Directors approved a one hundred-for-one
(100:1) forward split of the Corporations common stock, par value $0.001 per
share. The forward split was for shareholders of record as of the close of
business on Friday, April 30, 2010, and the market effective date for the
reverse stock split was May 3, 2010. As a result of the forward stock split, for
every one share of the Corporations old common stock shareholders received
ninety-nine additional shares of the Corporations new common stock.
Immediately following the forward split, the number of shares of the
Corporations outstanding issued common stock was increased from 5,545,000
shares to approximately 554,500,000 shares, par value $.001.
On May 26, 2010, the Company entered into
an Asset Purchase Agreement (the Agreement) with Blu Vu Deep Oil & Gas
Exploration, Inc., a Nevada corporation. Under the terms of the Agreement,
the Company purchased substantially all of the assets of Blue Vu, consisting of,
but not limited to, all stock of Blu Vus subsidiary, Elasco, Inc., certain
intellectual properties, computer programs and software, contracts, claims and
accounts receivables associated with the operation of Blu Vus business of
developing underwater deep breathing apparatus. In consideration of the
sale of the assets of Blu Vu, the shareholders of Blu Vu, received restricted
common shares of the Company totaling 123,978,980. No other
consideration was exchanged in the transaction.
In November 2010, the Company issued
80,000,000 shares to Elascos president as a bonus of $10,000 and prepaid salary
of $50,000 over the next six months under an Employee Stock Incentive Program
(ESIP).
As of December 31, 2010, the number of
common shares issued and outstanding was 758,478,980.
NOTE 11 INCOME TAXES
The Company recognizes deferred income tax
liabilities and assets for the expected future tax consequences of events that
have been recognized in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on the
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse.
The Company incurred no income taxes for
the periods ended December 31, 2010 and December 31, 2009 except for $800 each
year for state franchise taxes. For the three months ended December 31,
2010 the Company had incurred a loss and had a state income tax payable of $800
at December 31, 2010. No income tax benefit was recognized as of December
31, 2010 and December 31, 2009 as a result of the valuation allowance applied to
deferred tax assets, due to the uncertainty of recognizing any future tax
benefits from the NOL.
The Companys net loss of approximately
$(183,159) will be carried forward to offset future taxable income. As of
December 31, 2010, the Companys federal NOL is approximately $386,000 expiring
in 2025, and its California NOL is approximately $296,000 expiring 2015. The
Company has book/tax differences of approximately $270,000 comprised of accrued
officers compensation of $70,000, accrued consulting of $120,000 and accrued
interest of $80,000. These differences result in a deferred tax asset of
approximately $91,000. The federal and California NOLs result in a
deferred tax asset of approximately $124,000. Due to the uncertainty of
recognizing any future benefit, the Company has recorded a valuation allowance
of $215,000 to offset the deferred tax asset. The valuation allowance
increased $69,600 from September 30, 2010, as a result of the uncertainty of
utilizing the deferred tax assets.
The deferred tax asset comprised the following at
December 31, 2010:
|
|
|
|
|
Deferred tax asset:
|
|
|
|
|
|
|
|
|
Federal benefit of NOL carryover
|
$
96,500
|
|
California benefit of NOL carryover
|
27,500
|
|
Accrued officer's compensation
|
24,000
|
|
Accrued consulting
|
40,000
|
|
Accrued interest
|
27,000
|
|
|
|
|
|
|
Total
|
|
|
215,000
|
|
|
|
|
|
|
Valuation allowance
|
(215,000)
|
|
|
|
|
|
|
Net deferred tax asset
|
$
-
|
NOTE 12 SUBSEQUENT EVENTS
The Company has evaluated subsequent event for purposes
of recognition or disclosure in the financial statements through the date of
issuance of its financial statements.
On January 21, 2011, the Company issued a
convertible note for $50,000. The note is due on October 24, 2011 and
accrues interest at 8.0%. The Note may be converted into unregistered
shares of the Companys common stock, par value $0.001 per share at the
Conversion Price, as defined below, in whole, or in part, at any time beginning
180 days after the date of the Notes, at the option of the holder. The
Conversion Price shall be equal to 50% multiplied by the Variable Conversion
Rate which is equal to the average of the three (3) lowest closing bid prices of
the Common Stock during the ten (10) trading day period prior to the date of
conversion.
On March 25, 2011, the Company issued a
convertible note in the amount of $3,150,000 for the purchase of a patent of an
air management system for a submersible vehicle. The note is payable on
demand beginning 6 months from the note date and accrues interest at 5.0%.
The Note may be converted into unregistered shares of the Companys common
stock, par value $0.001 per share at the Conversion Price, as defined
below, at any time beginning, at the option of the holder. The Conversion Price
shall be equal to 30% multiplied by the average of the three (3) highest closing
bid prices of the Common Stock during the three (3) trading day period prior to
the date of conversion.
AMENDMENT TO THE COMPANYS ARTICLES OF
INCORPORATION TO AUTHORI
ZED
20,000,000 SHARES OF PREFERRED
STOCK
The Companys Articles of Incorporation, as
amended (the Articles of Incorporation) authorizes the maximum number of
preferred shares outstanding at any time shall be twenty million (20,000,000)
shares of preferred stock, no par value. On March 7, 2011, the Board
approved an amendment to the Articles of Incorporation to authorize up to twenty
million (20,000,000) shares of preferred stock. The Board is authorized to
fix the number of shares of and to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon the preferred
stock.
The general purpose and effect of the
amendment to the Companys Articles of Incorporation is to authorize twenty
million (20,000,000) additional shares of preferred stock. Such increase
is not attributable to a specific transaction, or anticipated transaction.
As such, no consideration has been received or is to be received by the
Company for a transaction underlying the increase in preferred stock. The
general effect upon the rights of the existing security holders as a result of
the increase in preferred stock is an overall dilution of the Companys stock
and the inherent affects that increasing the Companys outstanding preferred
stock has on shareholder value based on the dilutive impact of the additional
authorized shares. If the Board deems it to be in the best interests of
the Company and the stockholders of the Company to issue shares of preferred
stock in the future from authorized shares, the Board generally will not seek
further authorization by vote of the Stockholders, unless such authorization is
otherwise required by law or regulations.
EFFECTIVE DATE OF AMENDMENTS
Pursuant to Rule 14c-2 under the Exchange
Act, the effective date of the actions stated herein, shall not occur until a
date at least ten (10) days after the date on which this Information Statement
has been mailed to the Stockholders. The Company anticipates that the
actions contemplated hereby will be effected on or about the close of business
on April 25, 2011.
By Order of the Board
/s/ Henry
Larrucea_____________________________
Henry Larrucea, President
Deltron (CE) (USOTC:DTRO)
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