Deltron,
Inc. & Subsidiary.
Notes to
Unaudited Condensed Consolidated Financial Statements
June 30,
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 the manufacturer and sales of open cast molded
polyurethane elastomer products such as skateboard, roller skate, and industrial
wheels.
After
the acquisition of Blu Vu’s asset, the Company is engaged in potential
manufacture and mass-market proprietary breathing equipment developed
specifically for the oil and gas, mining and safety industries, 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 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 will
transfer all U.S. and international patent rights to the Company. The
Company expects that the transfer of those rights will be completed in the next
90 days. 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 Vu’s 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 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
9
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 after elimination of all significant intercompany
transactions and balances.
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 Company’s
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 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 December 31, 2009 thereto included in the Company’s Form 8-K filed on May
28, 2010 and 8-K/A filed on August 13, 2010.
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.
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.
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.
10
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 June 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 June 30, 2010. The
Company’s utilization of any net operating loss carry forward may be unlikely as
a result of its continued losses.
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.
Use of
Estimates
The
Company’s 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 Company’s 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.
Advertising Costs
Advertising costs are expensed when incurred.
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
11
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:
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Level 1 inputs to the valuation methodology
are quoted prices (unadjusted) for identical assets or liabilities
in active markets.
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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.
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Level 3 inputs to the valuation methodology
are unobservable and significant to the fair
value.
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During
the six months ended June 30, 2010, the Company issued convertible notes
totaling $69,500. As of June 30, 2010, the carrying value of these convertible
notes was $69,500. The Company used level 3 inputs for its valuation methodology
and the fair value was determined to be approximately $68,500 using cash flows
discounted at relevant market interest rates in effect at the period close since
there is no observable market price.
As of
June 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.
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 and six months ended June 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. For the three and six months ended June 30,
2009, the Company did not have common equivalent shares.
12
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 statement of financial
condition or results of operations.
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 Company’s consolidated financial statements but
will require that interim and annual filings include references to the
Codification.
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
Company’s consolidated 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
13
correction of an error or retrospective application of U.S. GAAP.
Those amendments remove potential conflicts with the SEC’s 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 Company’s 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 June 30, 2010 the company had a net deficit in retained earnings of
$(2,978,009) and a net loss of $(260,008) for the six months then ended.
These matters create substantial doubt about the Company’s ability to
continue as a going concern. For the six months ended June 30, 2010, the
Company is able to pay its obligations to vendors from fund raised from
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.
NOTE 3
– INVENTORY
Inventory consisted of the following :
June
30, 2010
December
31, 2009
Raw
material
$253,641
$219,372
Work
in process
55,585
31,210
Finished
goods
64,227
79,204
373,453
329,786
Less
allowance for obsolete inventory
(9,000
)
(9,000
)
$364,453
$320,786
NOTE 4 - PROPERTY AND
EQUIPMENT
Property and equipment consisted of the following at June 30, 2010
and December 31, 2009.
June
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
480,976
476,810
$
45,675
$
49,841
14
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 president of the Company. The outstanding
balance at both June 30, 2010 and December 31, 2009 was $125,000 at 6.5%.
NOTE 6
– NOTES PAYABLE – RELATED PARTY
Concurrent with the sale of Elasco to Blu Vu, the previous owner
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. Total interest paid or
accrued for the shareholder for the six months ending June 30, 2010 was $14,692
and the balance of the note as of June 30, 2010 was $587,684. Payments have not
been made on this note since July 2009. There is approximately $29,000 of
accrued interest at June 30, 2010.
The
same party 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 six months ending June 30, 2010 was
$10,732 and the balance of the note as of June 30, 2010 was $507,425.
Payments have not been made on this note since August 2009. There is
approximately $19,000 of accrued interest at June 30, 2010.
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 July 12, 2010 and August 17, 2010, respectively and bear interest at 5.0%.
Both notes are convertible into shares of the Company’s common stock at a
conversion discount of 70% of the stocks bid price.
The
Company has three notes payable to shareholders for $10,000, $5,000 and $15,000.
These notes are due September 17, 2010, October 22, 2010 and November 22,
2010, respectively and bear interest at 5.0%. All three notes are
convertible into shares of the Company’s common stock at a conversion discount
of 70% of the stocks bid price.
The
effect of the beneficial conversion feature has been recoded as interest expense
of $69,500 in the six months ended June 30, 2010.
Current
maturities of the notes payable for each of the five years ending December 31
are as follows: 2010 $285,989; 2011 $ 158,375; 2012 $165,620; 2013
$173,201; 2014 $89,924, thereafter $291,499.
NOTE
7 – CONCENTRATION OF CREDIT RISK
A
material part of the Company’s account receivables is outstanding with five
customers. The amount owed by these customers at June 30, 2010, was
$336,913, approximately 84% of the Company’s receivables. Sales to the top
five customers represented 84% of total sales for the six
15
months
ended June 30, 2010. The amount owed by these customers at December 31,
2009, was $172,433, approximately 69% of the Company’s receivables. Sales
to these five customers represented 74% of total sales for the year ended
December 31, 2009.
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 six months ended June 30, 2010 was $33,198 all
of which was paid to a related party.
Future
rental payments required under this operating lease are as follows:
Year
Ended
December
31,
2010
$
66,396
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.
NOTE 9
– 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 Corporation’s Board of
Directors approved a one hundred-for-one (100:1) forward split of the
Corporation’s 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 Corporation’s
old common stock shareholders received ninety-nine additional shares of the
Corporation’s new common stock. Immediately following the forward split,
the number of shares of the Corporation’s outstanding issued common stock was
increased from 5,545,000 shares to approximately 554,500,000 shares, par value
$.0001.
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
Vu’s subsidiary, Elasco, Inc., certain intellectual properties, computer
programs and software, contracts, claims and accounts receivables associated
with the operation of Blue Vu’s business of developing underwater deep breathing
apparatus. In consideration of the sale of the assets of Blue Vu, the
shareholders of Blue Vu, received
16
restricted
common shares of the Company totaling
123,978,980. No other consideration will be exchanged in the transaction.
As of
June 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 June 30, 2010 and
December 31, 2009 except for $800 each year for state franchise taxes. For
the six months ended June 30, 2010 the Company had incurred a loss and had no
tax liability at June 30, 2010. No income tax benefit was recognized as of
June 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.
NOTE 11
– SUBSEQUENT EVENTS
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 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 will
transfer all U.S. and international patent rights to the Company. The
Company expects that the transfer of those rights will be completed in the next
90 days. If the per unit fee payments are not made when due, Radikal has
the right to the return of the intellectual property transferred.
In July
2010, the Company borrowed $55,000 from three shareholders by issuing
convertible notes in the amounts of $5,000, $15,000, $20,000 and $15,000 with
the same conversion features as the notes issued in the six months ended June
30, 2010. The notes are all due in six months and bear interest at 5%.
17
I
TEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
Except for historical information, this report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such
forward-looking statements involve risks and uncertainties, including, among
other things, statements regarding our business strategy, future revenues and
anticipated costs and expenses. Such forward-looking statements include,
among others, those statements including the words “expects,” “anticipates,”
“intends,” “believes” and similar language. Our actual results may differ
significantly from those projected in the forward-looking statements.
Factors that might cause or contribute to such differences include, but
are not limited to, those discussed herein as well as in the “Description of
Business – Risk Factors” section in our Annual Report on Form 10-K for the year
ended September 30, 2009. You should carefully review the risks described
in our Annual Report and in other documents we file from time to time with the
Securities and Exchange Commission. You are cautioned not to place undue
reliance on the forward-looking statements, which speak only as of the date of
this report. We undertake no obligation to publicly release any revisions to the
forward-looking statements or reflect events or circumstances after the date of
this document.
Although we believe that the expectations reflected in these
forward-looking statements are based on reasonable assumptions, there are a
number of risks and uncertainties that could cause actual results to differ
materially from such forward-looking statements.
All references in this Form 10-Q to the “Company,” “Deltron,”
“we,” “us,” or “our” are to Deltron, Inc.
Results of
Operations
We
generated revenues from sales of our products in the amount of $854,999 and
$546,503 for the three months ended June 30, 2010 and 2009, respectively, and
incurred $151,451 and $311,913 in selling, general and administrative expenses
for the quarters ended June 30, 2010 and 2009, respectively.
We
generated revenues from sales of our products in the amount of $1,1458,502 and
$907,152 for the six months ended June 30, 2010 and 2009, respectively, and
incurred $242,505 and $596,696 in selling general and administrative expenses
for the six months ended June 30, 2010 and 2009, respectively.
Revenues
increased due to new efforts by the Company to increase revenue in 2010 compared
to 2009 by the introduction of new products and improvement in the overall
national economy.
We
incurred cost of goods sold of $764,547 and $470,037 for the quarters ended June
30, 2010 and 2009 respectively. We incurred cost of goods sold of
$1,363,858 and $860,560 for the six months ended June 30, 2010 and 2009,
respectively.
The
increase corresponded to the increase in revenue, but at a smaller percentage
increase than revenues due to operating efficiencies realized in 2010.Expenses
decreased due to a decrease in salaries and consulting fees.
The
following table provides selected financial data about our company as of June
30, 2010 and December 31, 2009.
18
Balance
Sheet Data
June
30, 2010
December
31, 2009
Cash
and cash equivalents
$
27,065
$
29,986
Total
assets
$
890,575
$
697,238
Total
liabilities
$
1,887,338
$
1,443,579
Shareholders’
equity (deficit)
$
(996,763)
$
(746,341)
Net
cash provided by financing activities, for the six month period ending June 30,
2010, was $69,500.
We
have no off balance sheet arrangements.
Plan of
Operation
Until May 26, 2010,
we were a development stage company that had no operations, no revenue, no
financial backing and limited assets. We had originally planned to develop
our property in San Jose, Costa Rica, to rent two three-bedroom apartments to
middle income families. Recently, the Company has decided to redirect its
business focus towards identifying and pursuing options regarding the
development of a new business plan and direction.
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 (Blue Vu”). The
acquisition of Blu Vu is being treated as a reverse recapitalization, with Blu
Vu’s wholly owned subsidiary Elasco becoming the accounting acquiror for
financial reporting purposes.
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 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 will transfer all U.S. and international
patent rights to Deltron. Deltron expects that the transfer of those
rights will be completed in the next 90 days. If the per unit fee payments
are not made when due, Radikal has the right to the return of the intellectual
property transferred.
OVERVIEW
Blu Vu,
originally formed in June of 2008, was a technology company focused on the
development of deep-sea exploration breathing technology for the oil and gas
industries; as well as for use in fire and rescue, mining, hazardous materials
industries, and recreational diving. Under the technical guidance of
internationally renowned deep-sea diver, Dr. Jeffrey Bozanic, the Company
expects to manufacture and mass market proprietary breathing equipment developed
specifically for the oil & gas, mining, military, and safety industries, as
well as the emerging market of recreational divers. Under the terms of the
Agreement, Deltron acquired all of the assets associated with the operation of
Blu Vu’s business.
Additionally, Deltron intends to seek complementary businesses to
enhance its growth by acquiring companies with historically profitable results,
strong balance sheets, high profit margins, and solid management teams in place.
Under the assumption of finding appropriate target companies, Deltron
expects to fulfill its strategic growth plan with additional acquisitions during
each of the next several years.
On
March 24, 2009, Blu Vu acquired Elasco Inc., an engineered plastics and
polyurethane molding company with a production facility in Southern California.
Elasco is a leader in polyurethane and plastics
19
technologies. Elasco has been in business since 1979
producing a variety of recreational and industrial products used in dynamic
applications made mainly from polyurethane. The company also has injection
molding capability of reinforced and non reinforced plastics and produces many
parts for its internal use as component parts in various assemblies. In
what is currently a fragmented market, Elasco and Deltron expect to fill the
need for improved, safer and more efficient breathing technology. The
acquisition of Elasco is intended to allow Deltron to manufacture its
proprietary Rebreather technologies, as well as provide new synergies among
future acquired companies that may develop, allowing for greater cost
effectiveness, thus further enhancing each individual company’s strengths.
The
molded polyurethane products segment that Elasco operates in is an industry that
is extremely fragmented. Most companies operate in niche markets providing
very specific products to their customer base. The majority of these
companies use a lesser amount of automation than Elasco does. They also
have significantly higher raw material costs because they typically purchase
premixed packages through sources that significantly mark up the price of the
base materials. Elasco has a “vertically integrated” production facility
that enables it to purchase raw materials at a significant discount from the
typical price of premixed products. We expect to target companies for
acquisition that have synergies that will benefit from advantages in
productivity and raw material costs that Elasco can provide in order to maximize
the profit potential of those companies.
PRODUCTS
Rebreather Systems
A
rebreather re-circulates 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.
Benefits of Blu Vu Rebreather technology
•Maximizes No-Decompression Time
•Extended diving depth capability
•Stealth - No bubbles
•Negligible limits to Air Travel after Diving
•Ship
bottom inspections
•Size
& weight of equipment package reduced
•Helium
cost and consumption minimized
Products - Polyurethane
Elasco
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.
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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. Elasco’s 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 Elasco’s
products service. The versatility of its compounding provides Elasco with
a wide range of performance characteristics outperforming other materials
with:
•Excellent abrasion resistance
•High
tensile and tear strengths
•Flexibility over a wide range of temperatures
•Increased elasticity over the entire hardness range
•High
impact resistance and vibration dampening
•Excellent resistance to oils, greases, and many solvents
•Good
weatherability
•Resistance to fungal and microbial attack
•Ability to bond to metals, other rubbers, plastics, and polymer
compounds
•High
load bearing capabilities
Liquidity and
Capital Resources
Our
cash and cash equivalents balance as of June 30, 2010, was $27,065 and December
31, 2009 was $55,338. We have a working (deficit)/capital of ($253,454) and
$91,002 as of June 30, 2010 and December 31, 2009, respectively. The Company is
currently financing operations using convertible debt instruments, see Note 6 of
the condensed consolidated financial statements for further discussion.
Off-Balance Sheet Arrangements
We have never entered into any off-balance sheet financing
arrangements and have not formed any special purpose entities. We have not
guaranteed any debt or commitments of other entities or entered into any options
on non-financial assets.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4T.
CONTROLS AND PROCEDURES
Evaluation of Our Disclosure Controls
Under the supervision and with the participation of our senior
management, including our chief executive officer and chief financial officer,
Henry Larrucea, we conducted an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), as of the end of the period covered by this quarterly
report (the “Evaluation Date”). Based on this evaluation, our chief executive
officer and chief financial officer concluded as of the Evaluation Date that our
disclosure controls and procedures were effective such that the information
relating to us, required to be disclosed in
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our Securities and Exchange Commission (“SEC”) reports (i) is
recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms, and (ii) is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial
reporting that occurred during the quarter ended June 30, 2010, that have
materially affected or are reasonably likely to materially affect our internal
control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
In the ordinary course of our business, we may from time to time
become subject to routine litigation or administrative proceedings which are
incidental to our business. We are not a party to nor are we aware of any
existing, pending or threatened lawsuits or other legal actions involving
us.
ITEM 1A.
RISK FACTORS
Not applicable.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company entered into an agreement with Blu Vu to issue
123,98,980 shares of its common stock in conjunction with the Asset Purchase
Agreement between the Company and Blu Vu. The shartea re authorized by
have not yet been issued. These shares were issued without registration in
reliance on Section 4(2) of the Securities Act.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
(REMOVED AND RESERVED)
None.
ITEM 5.
OTHER INFORMATION
None.
ITEM 6.
EXHIBITS
Exhibit No.
Description
31.1 / 31.2
Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Executive
and Financial Officer
32.1 / 32.2
Rule 1350 Certification of Principal Executive and Financial
Officer
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DELTRON, INC.
Dated: August 20, 2010
By:
/s/ Henry Larrucea
Henry
Larrucea
President, Principal Executive and Financial Officer
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