SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 26, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . . . . . . . . . to . . . . . . . . . . .
Commission File No. 0-13826
DISCUS ACQUISITION CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1456350
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 South Seventh Street, Suite 2430, Minneapolis, MN 55402
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code 612/371-9650
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 1934
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 __________
On April 30, 1995, there were 2,356,140 shares of the Registrant's common stock
outstanding.
This document contains 11 pages.
PART 1 - FINANCIAL INFORMATION
DISCUS ACQUISITION CORPORATION AND SUBSIDIARIES
(FORMERLY KNOWN AS DISCUS CORPORATION AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 26, December 25,
1995 1994
ASSETS
Cash and cash equivalents $ 2,375,501 $ 2,608,299
Total current assets 2,375,501 2,608,299
Property and equipment, net 55,440 60,437
Total assets $ 2,430,941 $ 2,668,736
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 5,330 2,326
Accounts payable 60,089 20,633
Income taxes payable 103,000
Accrued expenses 7,850
Net (assets) liabilities of discontinued
operations, including restaurant held for
sale encumbered by a mortgage of $411,163
at March 26, 1995 (51,187) 56,492
Total current liabilities 14,232 190,301
Long term debt, less current portion 39,670 42,674
Shareholders' equity:
Common stock, no par value; 10,000,000
shares authorized; 2,356,140
shares issued and out-
standing in 1995 and 1994 3,769,031 3,769,031
Accumulated deficit (1,391,992) (1,333,270)
Total shareholders' equity 2,377,039 2,435,761
Total liabilities and
shareholders' equity $ 2,430,941 $ 2,668,736
See accompanying notes to unaudited consolidated financial statements
DISCUS ACQUISITION CORPORATION AND SUBSIDIARIES
(FORMERLY KNOWN AS DISCUS CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter Ended Quarter Ended
March 26, 1995 March 27, 1994
Interest income $ 31,194 $
Corporate expenses (89,916)
Loss from continuing operations (58,722)
Loss from discontinued operations
associated with restaurant operations
disposed of in June, 1994 (less
applicable income taxes) (315,569)
Net loss (58,722) (315,569)
Per share amounts:
Loss from continuing operations $ (.02) $
Loss from discontinued operations $ $ (.15)
Net loss $ (.02) $ (.15)
Weighted average number of
shares outstanding $ 2,356,140 $ 2,060,400
See accompanying notes to unaudited consolidated financial statements
DISCUS ACQUISITION
CORPORATION AND SUBSIDIARIES
(FORMERLY KNOWN AS DISCUS CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase in Cash
(Unaudited)
Quarter Ended Quarter Ended
March 26, March 27,
1995 1994
Cash flows from operating activities:
Net loss $ (58,722) $(315,569)
Adjustments to reconcile net
loss to net cash
provided by operating activities:
Depreciation of property
and equipment 10,997 66,045
Amortization of equipment
held under capital leases 30,941
Amortization of deferred
franchise and royalty costs 21,264
Noncurrent liabilities 400
Changes in operating assets
and liabilities, exclusive of
investing and financing activities (173,001) 342,787
Net cash (used in) provided
by operating activities (220,726) 145,868
Cash flows from investing activities:
Acquisition of property and
equipment (18,968)
Proceeds from sale of property
and equipment 3,387
Decrease in other assets 750
Net cash provided by (used in)
investing activities 3,387 (18,218)
Cash flows from financing activities:
Long-term debt payments (15,459) (30,786)
Notes payable payments (30,114)
Net cash used in
financing activities (15,459) (60,900)
(Decrease) increase in cash
and cash equivalents $ (232,798) $ 66,750
Cash and cash equivalents:
Beginning of year 2,608,299 201,478
End of period $ 2,375,501 $ 268,228
Changes in assets and liabilities,
exclusive of investing and
financing activities:
Inventories 10,329
Preopening costs 20,247
Other current assets 21,713
Accounts payable, accrued
expenses and income
taxes payable (173,001) 290,498
$ (173,001) $ 342,787
See accompanying notes to unaudited consolidated statements
DISCUS ACQUISITION CORPORATION AND SUBSIDIARIES
(FORMERLY KNOWN AS DISCUS CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Consolidated Financial Statements:
The unaudited consolidated financial statements of Discus Acquisition
Corporation and Subsidiaries (formerly Discus Corporation and Subsidiaries) as
of March 26, 1995, and for the quarters ended March 26, 1995, and March 27,
1994, reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to fairly state the results of
operations for interim periods. The results of operations for any interim period
are not necessarily indicative of the results for the full year, and due to the
disposal of all restaurant operations, the Company will no longer report any
significant operating activities until such time as a new business is acquired.
The unaudited consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto contained in the
Company's December 25, 1994, Annual Report on Form 10-KSB for the year ended
December 25, 1994.
2. Net Loss Per Share:
Net loss per share has been computed by dividing net income by the weighted
average of common stock shares outstanding during each period. Common stock
equivalent shares, which relate to stock options outstanding are not included in
the weighted average because their effect is antidilutive in 1995 and 1994.
3. Cash and Cash Equivalents:
The Company considers deposits in banks, certificates of deposits and other
short-term investments with original maturities of three months or less when
purchased to be cash equivalents.
4. Discontinued Operations, Disposal of All Restaurant Operations:
On April 15, 1994, the Company signed an Asset Purchase Agreement with
Fuddruckers, Inc., its franchisor, that provided for the sale of substantially
all of the business and restaurant operating assets of seven of the Company's
ten Fuddruckers restaurants and its interest in all real estate leases and
certain other contracts, permits and licenses which are transferable. The
Agreement granted Fuddruckers, Inc. an option to purchase two additional
Fuddruckers restaurants from the Company.
The sale was approved by the Company's shareholders on June 7, 1994. On June 7,
1994, the sale of the restaurants (including the two option restaurants) was
completed. The sale price aggregated $5,869,000. The Company assigned, and
Fuddruckers assumed from the date of closing of the transaction, all real estate
leases associated with the nine restaurants. The Company satisfied all other
obligations, including royalties due to Fuddruckers, Inc. related to the nine
restaurants upon closing of the transaction.
On the above date the Company's shareholders approved a change in the Company's
name from Discus Corporation to Discus Acquisition Corporation.
Also, in June 1994, the Company closed its remaining Fuddruckers restaurant. The
Company plans to dispose of its interest in the restaurant facility which is
leased by a subsidiary (guaranteed by Discus Acquisition Corporation through
July, 1995) for $60,000 per year under a ten year lease that expires in 2003.
The Company has reduced the carrying value of the equipment in the restaurant to
estimated net realizable value and recorded estimated losses (including one year
of property lease commitments) through the anticipated date of disposition of
the restaurant property.
Also, in June 1994, the Company sold idle equipment from two restaurants closed
in fiscal year 1993 for $10,000. The Company plans to sell its remaining
restaurant land, building, and equipment which is rented to a limited
partnership. The property is encumbered by a mortgage of $411,163 and has a net
book value of $526,435 at March 26, 1995. The Company anticipates selling the
property for an amount greater than the net book value and mortgage obligation.
The following schedule provides revenues and expenses for the discontinued
operations for the three month period ended March 27, 1994.
Restaurant sales 3,134,795
Other revenues 65,917
Total revenues 3,200,712
Cost of sales 929,273
Restaurant operating costs 2,164,806
Corporate expenses 250,422
Depreciation and amortization 124,389
Interest, net 44,991
Income tax provision 2,400
Total expenses 3,516,281
Loss from discontinued
operations $ (315,569)
Pursuant to action taken by the Board of Directors, upon closing of the
transaction with Fuddruckers, Inc., all stock options under the Company's
Employee Stock Option Plan and Non-Qualified Stock Options became immediately
vested and exercisable and a significant number of new options will become
exercisable. (See Note 5 also.)
5. The Spell Group Agreement:
Pursuant to a Stock Purchase Agreement dated as of March 3, 1994, the Company
created a strategic relationship with the Spell Group to implement a plan
adopted by its Board of Directors to divest the Company of a majority of its
Fuddruckers restaurants (See Note 4) and thereafter to pursue an acquisition
strategy whereby the Company, using funds realized from the disposal of its
restaurants, together with such other financing as may be available, would
acquire one or more existing business operations. The Spell Group Agreement was
approved by the Company's shareholders on June 7, 1994. Pursuant to the terms of
the Spell Group Agreement, the Spell Group purchased from the Company 100,000
shares of the Common Stock of the Company at $.75 per share.
The Company granted to members of the Spell Group five year options to purchase
an aggregate of 100,000 shares of the Company's Common Stock at $.75 per share
and five year options to purchase an aggregate of 300,000 shares at $1.35 per
share. None of the options shall be exercisable until December 1, 1996, with 25%
of such options becoming exercisable on December 1, 1996 and 1997, and the
remainder becoming exercisable on December 1, 1998. The exercise of options,
however, will automatically accelerate to the date of closing by the Company of
an exchange of securities, sale, merger, consolidation or similar transaction
involving a reorganization of, or acquisition by, the Company.
DISCUS ACQUISITION CORPORATION AND SUBSIDIARIES
(FORMERLY KNOWN AS DISCUS CORPORATION AND SUBSIDIARIES)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As described in Note 4 of the Notes to Consolidated Financial
Statements included in this Report on Form 10-QSB, the Company disposed of all
its restaurant operations during June of 1994. The Company plans to sell its
remaining restaurant property which is rented to a limited partnership. As a
result, the Company will no longer report any significant operating activities
until such time as a business is acquired.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
During the first quarter of 1995, the Company earned $31,194 in
interest income on invested funds. The Company incurred $89.916 in corporate
charges. Excluding net expenditures from its closed restaurant and from its
restaurant held for sale and assuming no acquisition occurs. the Company
estimates its net operating expenses for the next twelve months will be
approximately $140,000.
DISCONTINUED OPERATIONS, DISPOSAL OF ALL RESTAURANT OPERATIONS
The Company operated ten Fuddruckers restaurants during part of fiscal
year 1994. The Company sold nine of its restaurants and closed its remaining
restaurant in June 1994. Restaurant sales for the first quarter of 1994 were
$3,134,795. Cost of sales were $929,273 and restaurant operating costs were
$2,164,806 resulting in a net loss of $315,569 for the first quarter of 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased to $2,375,501 at
March 26, 1995 from $2,608,299 at December 25, 1994. The decrease resulted from
payment of corporate expenses in excess of interest income and the payment of
expenses related to discontinued operations that were accrued at December 25,
1994.
Using funds realized from the disposal of its restaurant properties,
together with such other financing as may be required, the Company plans to
acquire one or more existing business operations.
Pursuant to a Stock Purchase Agreement (the "Spell Group Agreement")
dated as of March 3, 1994, the Company created a strategic relationship with the
Spell Group to implement a plan adopted by its Board of Directors to divest the
Company of a majority of its Fuddruckers restaurants and thereafter pursue an
acquisition strategy whereby the Company, using funds realized from the
disposition of its restaurants, together with such other financing as may be
available, would acquire one or more existing business operations. The Spell
Group Agreement was approved by the Company's shareholders on June 7, 1994.
Pursuant to the terms of the Spell Group Agreement, the Spell Group purchased
100,000 shares of the Company's Common Stock at $.75 per share.
The Company granted to members of the Spell Group five year options to
purchase an aggregate of 100,000 shares of the Company's Common Stock at $.75
per share and five year options to purchase an aggregate of 300,000 shares at
$1.35 per share. The options are exercisable beginning on December 1, 1996, with
25 percent of such options becoming exercisable on both December 1, 1996, and
1997, and the remainder becoming exercisable on December 1, 1998. All of the
options shall become exercisable immediately upon the occurrence of an exchange
of securities, sale, merger, consolidation or similar transaction involving a
reorganization of, or acquisition by, the Company.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27-Financial Data Schedule
(b) Reports on Form 8-K:
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.
DISCUS ACQUISITION CORPORATION
REGISTRANT
Date: May 9, 1995 /s/ William H. Spell
William H. Spell
Chief Executive Officer
Date: May 9, 1995 /s/ Bruce A. Richard
Bruce A. Richard
Chief Financial Officer