FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1997
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ____________________
001-13207
Commission file number 000-22827
DISCAS, INC.
................................................................................
(Exact name of registrant as specified in its charter)
DELAWARE 06-1175400
................................................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
567-1 South Leonard Street, Waterbury, Connecticut 06708
................................................................................
(Address of principal executive offices) (Zip Code)
203-753-5147
................................................................................
(Registrant's telephone number, including area code)
................................................................................
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
l934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
|_| Yes |X| No
The number of shares outstanding of the issuer's single class of common
stock as of September 2, 1997 was 3,214,500.
Transitional Small Business Disclosure Format (check one)
|_| Yes |X| No
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DISCAS, INC.
CONSOLIDATED BALANCE SHEET
July 31, April 30,
1997 1997
---------- -----------
(unaudited) (audited)
ASSETS
Current assets:
Cash and equivalents $ 2,194 $ 173,100
Accounts receivable 1,099,767 1,244,554
Inventory 1,129,510 1,016,519
Other current assets 2,399 15,599
------------ ------------
Total current assets 2,233,870 2,449,772
---------- ----------
Property and equipment (net) 1,931,214 1,846,615
Other assets 1,243,536 1,248,602
---------- ----------
$5,408,620 $5,544,989
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,256,561 $1,280,710
Accrued expenses 201,547 174,629
Line of credit 512,075 490,000
Current portion of capital leases 30,417 30,416
Current portion of long-term debt 175,025 383,069
---------- ----------
Total current liabilities 2,175,625 2,358,824
--------- ---------
Capital leases, excluding current portion 39,066 48,101
Long-term debt, excluding current portion 2,318,576 2,162,777
Related party loans 123,734 123,734
Stockholders' equity:
Common stock, par value $.0001 per share:
Authorized 20,000,000 shares
Outstanding 2,254,500 shares 225 225
Additional paid in capital 822,677 822,677
Retained earnings (accumulated deficit) (71,283) 28,651
------------ -----------
Total stockholders' equity 751,619 851,553
---------- ----------
$5,408,620 $5,544,989
========== ==========
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DISCAS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
Three months ended
July 31,
1997 1996
------------- --------------
Sales $ 1,880,874 $ 959,269
Cost of sales 1,329,116 738,032
------------- -------------
Gross Profit 551,758 221,237
Selling, general and administrative expenses 489,896 232,271
------------- -------------
Income (loss) from operations 61,862 (11,034)
Other income (expense):
Other income (expense) 8,255 (8,243)
Interest expense (83,819) (20,889)
Amortization of deferred financing costs (86,232) -
------------ -------------
Net other expense (161,796) (29,132)
------------ -------------
Minority interest - 28,226
------------ -------------
Net loss $ (99,934) $ (11,940)
============= =============
Average number of shares outstanding 2,488,750 1,880,143
========= =========
Net loss per share - primary $(.03) $(.01)
====== ======
- fully diluted $(.04) $(.01)
====== ======
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DISCAS, INC.
CONSOLIDATED STATEMENT OF CASH
FLOWS
(unaudited)
Three months ended
July 31,
1997 1996
----------- -----------
Cash flows from operating activities:
Cash received from customers $ 2,025,661 $ 897,582
Cash paid to suppliers and employees (1,832,988) (948,062)
Interest paid (62,743) (20,889)
Income taxes paid - -
------------ -----------
Net cash provided (used) by operating activities 129,930 (71,369)
------------ -----------
Cash flows from investing activities:
Payments on other assets (84,901) (17,304)
Purchases of fixed assets (176,731) (35,132)
----------- -----------
Net cash used by investing activities (261,632) (52,436)
----------- -----------
Cash flows from financing activities:
Principal payments on long-term debt (52,245) (23,281)
Proceeds from long-term debt - -
Principal payments on capital leases (9,034) (15,505)
Proceeds from credit line 22,075 170,000
------------ ----------
Net cash used by financing activities (39,204) 131,214
------------ ----------
Net increase (decrease) in cash (170,906) 7,409
Cash and equivalents at beginning of period 173,100 37,039
----------- -----------
Cash and equivalents at end of period $ 2,194 $ 44,448
=========== ==========
Reconciliation of net loss to cash provided (used)
by operating activities:
Net loss $ (99,934) $ (11,940)
----------- -----------
Items which did not (provide) use cash:
Depreciation and amortization 86,693 23,248
Interest 25,000 -
Minority interest - (28,226)
Deferred financing costs 86,232 -
Working capital changes which provided (used) cash:
Accounts receivable 144,787 (61,687)
Inventory (112,991) 87,293
Other assets 9,174 88,976
Prepaid expenses 13,200 (79,830)
Accounts payable (24,149) (66,052)
Accrued expenses 1,918 (23,151)
----------- -----------
Net cash provided (used) by operating activities $ 129,930 $ (71,369)
========== ===========
PART I - FINANCIAL INFORMATION
DISCAS, INC.
July 31, 1997
10
Item 1. Financial Statements - Notes
1. Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and in the opinion
of the Company include all adjustments necessary to present fairly the results
of operations, financial position and changes in cash flow.
The results of operations for the interim periods are not necessarily indicative
of the results expected for the full year.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted for periods ending
after December 15, 1997. Earlier application is not permitted. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options will be excluded. The impact is not expected to have a material
effect in primary earnings per share for the first quarter ended July 31, 1997
and 1996. The impact on the calculation of diluted earnings per share for these
quarters is not expected to be material.
2. Inventories
Inventories consist of the following:
July 31, 1997 April 30, 1997
------------- --------------
Finished goods $ 492,810 $ 212,148
Raw materials and supplies 636,700 804,371
----------- -----------
$1,129,510 $1,016,519
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3. Property and equipment
Property and equipment consist of the following:
July 31, 1997 April 30, 1997
------------- --------------
Machinery and equipment $2,601,641 $2,436,533
Leasehold improvements 64,032 63,843
Office equipment 69,583 68,402
Vehicles 59,401 58,206
Furniture and fixtures 22,156 22,098
----------- -----------
Total property and equipment 2,816,813 2,649,082
Less: accumulated depreciation 885,599 802,467
----------- -----------
Net property and equipment $1,931,214 $1,846,615
---------- ----------
Item 1. Financial Statements - Notes (Cont'd)
4. Other assets
Other assets consist of the following:
July 31, 1997 April 30, 1997
------------- --------------
Deferred offering costs $ 606,942 $ 532,148
Deferred financing costs, net 346,231 432,463
Goodwill, net 212,342 216,077
Security deposits 31,911 32,310
Other 46,110 35,604
------------ ------------
$1,243,536 $1,248,602
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5. Economic dependency
In the quarter ended July 31, 1997, two customers accounted for approximately
31% of sales (17% and 14%, respectively); in the quarter ended July 31, 1996,
two customers accounted for approximately 33% of sales (22% and 11%,
respectively).
6. Subsequent events
During August 1997, the Company concluded an initial public offering of 800,000
units of its common stock and warrants ($5.00 per share and $.10 per warrant)
for total gross proceeds of $4,080,000. The following costs were deducted or
paid from the proceeds:
Underwriters' commissions $408,000
Underwriters' expenses 82,400
Underwriters' legal fees 35,000
Accounting and audit fees 60,000
Company legal fees 135,000
Printing costs 69,595
Other consulting fees and miscellaneous expenses 47,295
----------
$837,290
In addition, the Company had previously paid $538,846 of the $606,942 of
deferred offering costs related to the initial public offering. Such amounts had
been recorded as deferred assets on the consolidated balance sheet of the
Company.
Accordingly, as a result of the foregoing, the common stock of the Company was
increased by $80 and additional paid in capital was increased by $2,703,784.
Cash and working capital were increased by $3,242,710.
Item 1. Financial Statements - Notes (Cont'd)
The Company also:
Paid off its bridge loan ($360,000) and related accrued interest
($13,583).
Converted its $1,000,000 convertible promissory note payable into 160,000
shares of its common stock; this resulted in an increase of $16 in the
Company's common stock account and an increase of $999,984 to additional
paid in capital.
Paid $85,300 to its principal underwriter, Roan Capital Partners L.P., for
a two year consulting agreement. Such amount will be amortized on a pro
rata basis over the two year period ending September 30, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company produces proprietary plastic and rubber compounds using a variety of
recycled and prime, or virgin, materials. The Company has extensive expertise in
polymer technology, and has commercialized proprietary formulations used in the
manufacturing of products in the footwear, aeronautic, military, automotive and
consumer products sectors. During November 1996, the Company acquired the assets
of a plastic container manufacturer in New Jersey, Christie Enterprises, Inc.
(the "Christie Acquisition").
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature, are
intended to be, and are hereby identified as "forward looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended. The Company cautions readers that forward looking
statements, including without limitation, those relating to the Company's future
business prospects, revenues, working capital, liquidity, capital needs,
interest costs, and income, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Liquidity and Capital Resources
Financial Condition
During August 1997, the Company concluded the initial public offering of its
common stock and warrants. As described above, this has significantly improved
the working capital position of the Company. Had the transaction occurred at
July 31, 1997 cash would have increased from $2,194 to $3,244,904 and net
working capital would have increased from $89,495 to $3,332,205. A portion of
the net proceeds was then used to pay off the Company's bridge loan and accrued
interest ($373,583) and to prepay a two year consulting agreement with its
principal underwriter ($85,300).
In addition, the Company's $1,000,000 convertible promissory note was converted
into 160,000 shares of common stock which would have decreased long term debt
from $2,493,601 at July 31,1997 to $1,493,601.
The Company also expanded its bank revolving loan credit facility from $700,000
to $1,500,000.
As a result of the foregoing, its is expected that the proceeds from the initial
public offering, the expanded credit facility and cash flow from operations will
provide sufficient funds for the Company to meet its working capital, capital
expenditure and debt service requirement needs for the foreseeable future.
Additional funds may be required if the Company is successful in expanding its
business through internal growth and/or acquisitions of businesses in related
industries.
Results of Operations
Quarters Ended July 31, 1997 and 1996
Sales increased by $921,605, or approximately 96%, to $1,880,874 for the quarter
ended July 31, 1997, as compared to $959,269 for the quarter ended July 31,
1996. The 1997 sales include $979,725 related to the Christie Acquisition.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Cost of goods sold increased by $591,084, or approximately 80%, to $1,329,116
for the quarter ended July 31, 1997, compared to $738,032 for the quarter ended
July 31, 1996. The increase in cost of goods sold was attributable to increased
sales volume, principally due to the Christie Acquisition; cost of goods sold as
a percentage of sales was 70% for the quarter ended July 31, 1997 as compared to
77% in 1996. The decrease in cost of sales as a percent of sales is due to
reductions in the cost of raw material purchases because of the effect of buying
larger quantities of raw materials and because of production efficiencies
developed in the manufacture of the Company's products.
Gross profit increased by $330,521, or approximately 149%, to $551,758 for the
quarter ended July 31, 1997, as compared to $221,237 for the quarter ended July
31, 1996. Such increase was primarily attributable to the increase in sales
volume, reductions in raw material costs and the introduction of production
efficiencies in the manufacture of the Company's products.
Selling, general and administrative costs increased by $257,625, or
approximately 111%, to $489,896 for the quarter ended July 31, 1997 as compared
to $232,271 for the quarter ended July 31, 1996. The increase is attributable to
the hiring of additional personnel and the associated costs for employee benefit
programs, travel and marketing expenses as the Company continued to implement
its strategy for growth. Selling, general and administrative costs related to
the Christie Acquisition amounted to approximately $137,000 for the quarter
ended July 31, 1997.
Operating income increased by $72,896 to $61,862 for the current quarter as
compared to a loss of $11,034 from the quarter ended July 31, 1996.
Deferred financing charges of $86,232 were amortized in the quarter ended
July 31, 1997 (none in fiscal 1996) and this noncash charge is included in
interest expense.
Net loss increased by $87,994 to $99,934 for the quarter ended July 31, 1997 as
compared to a loss of $11,940 for the quarter ended July 31, 1996. The increase
was primarily attributable to the amortization of deferred financing charges and
other interest costs incurred to continue the implementation of the Company's
growth strategy.
PART II - OTHER INFORMATION
DISCAS, INC.
July 31, 1997
None.
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:
DISCAS, INC.
Registrant
Date: September 11, 1997 By /s/ Ronald P. Pettirossi
Ronald P. Pettirossi
Chief Financial Officer