DISCAS, INC.
Filing Type: 10QSB
Description: Quarterly Report
Filing Date: April 10, 2001
Period End: January 31, 2000
Primary Exchange: Boston Stock Exchange
Ticker: DSCS
Table of Contents
- --------------------------------------------------------------------------------
10-QSB
Consolidated Balance Sheet.....................................................3
Consolidated Statements of Operation...........................................4
Consolidated Statements of Cash Flows..........................................5
Notes to Consolidated Financial Statements.....................................6
Management's Discussion, Extraordinary Item....................................6
Results of Operations..........................................................7
Liquidity and Capital Resources................................................8
Management.....................................................................9
Employment Agreements.........................................................10
Signatures....................................................................10
EX-27
Exhibit 27 Table..............................................................11
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2000
-------------------------------------------------
[ ] 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.
|X| Yes |_| No
The number of shares outstanding of the issuer's single class of common
stock as of July 31, 1999 was 3,290,776.
Transitional Small Business Disclosure Format (check one)
|_| Yes |X| No
Page 2
DISCAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, April 30,
2000 1999
(UNAUDITED) (AUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 11,041 $ 60,055
Accounts receivable, net of allowance for
doubtful accounts of $0 and $51,415 24,429 671,399
Inventory, net of allowance for
obsolescence of $75,000 -- 285,251
---------- ----------
Total current assets 35,470 1,016,705
Property and equipment (net) -- 1,495,420
Other assets
Deposits and other assets 179 37,453
---------- ----------
$ 35,649 $2,549,578
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
Accounts payable $ 19,888 $1,112,739
Accrued expenses 13,952 207,455
Line of credit -- 1,214,776
Obligations under capital leases -- 86,575
Note payable -- 237,983
---------- ----------
Total current liabilities 33,840 2,859,528
Related party loans -- 112,312
---------- ----------
Stockholders' equity (deficiency in assets):
Common stock, par value $.0001 per share:
authorized 20,000,000 shares, 3,390,776
shares issued and outstanding 339 339
Additional paid in capital 4,705,106 4,705,106
Accumulated deficit (4,703,636) (5,127,707)
----------- -----------
Total stockholders' equity (deficiency in assets) 1,809 (422,262)
----------- -----------
$ 35,649 $ 2,549,578
=========== ===========
The accompanying notes are an integral part of these financial statements.
Page 3
DISCAS, INC. AND SUBSIDUARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Three Nine Nine
Months ended Months ended Months ended Months ended
January 31, January 31, January 31, January 31,
2000 1999 2000 1999
Sales $ 256,120 $ 719,866 $ 1,747,171 $ 3,288,815
Cost of Sales $ 189,792 $ 697,739 $ 1,348,584 $ 2,765,808
----------- ----------- ----------- -----------
Gross profit $ 66,328 $ 22,127 $ 398,587 $ 523,007
Selling, general and administration
Expenses $ 205,624 $ 332,937 $ 794,267 $ 981,329
----------- ----------- ----------- -----------
Loss from operations $ (139,296) $ (310,810) $ (395,680) $ (458,322)
----------- ----------- ----------- -----------
Other income (expense) :
Gain on sale of fixed assets - - - 43,006
Interest expense $ (19,009) $ (35,506 $ (82,723) $ (104,528)
----------- ----------- ----------- -----------
Net other income (expense) $ (19,009) $ (35,506) $ (82,723) $ (61,522)
----------- ----------- ----------- -----------
(Loss) before extraordinary item $ (158,305) $ (346,316) $ (478,403) $ (519,844)
Extraordinary items:
Bankruptcy reorganization $ 902,474 $ - $ 902,474 $ -
Forgiveness of debt $ - $ - $ - $ 123,844
----------- ------------ ----------- -----------
Net income (loss) $ 744,169 $ (346,316) $ 424,071 $ (396,000)
=========== ============ =========== ===========
Average number of shares outstanding 3,390,776 3,282,776 3,390,776 3,260,648
=========== ============ =========== ===========
Net loss per share (Basic and Diluted) :
Loss before extraordinary items (0.05) (0.11) (0.14) (0.16)
Extraordinary items
Bankruptcy reorganization 0.27 - 0.27 -
Forgiveness of debt - 0.00 - 0.04
----------- ------------ ----------- -----------
Net income (loss) $ 0.22 $ (0.11) $ 0.13 $ (0.12)
=========== ============ =========== ===========
The accompanying notes are an integral part of these financial statements
Page 4
DISCAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended January 31,
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 424,071 $(396,000)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation expense 163,906 265,098
Interest expense 76,672 --
Extraordinary item - reorganization (902,474) --
Extraordinary item - forgiveness of debt -- (123,844)
Changes in assets and liabilities:
Decrease in accounts receivable 425,463 196,703
Decrease (Increase) in inventory 66,255 (69,792)
Increase in other assets (12,879) (49,272)
Increase in prepaid expenses (20,761) (8,108)
Increase in accounts payable 44,336 169,038
Increase (Decrease) in accrued expenses (40,042) (26,141)
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 224,547 (42,318)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments on other asset -- (57,380)
Acquisition of property & equipment (29,172) (112,320)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (29,172) (169,700)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable (34,086) (129,183)
Proceeds from common stock and warrants -- 140,000
Principal payments on obligations under capital leases (17,585) (38,399)
Other -- 27,735
Principal payments on line of credit (81,454) (100,000)
Cash surrendered at reorganization (111,264) --
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (244,389) (99,847)
--------- ---------
NET DECREASE IN CASH AND EQUIVALENTS (49,014) (311,865)
CASH AND EQUIVALENTS, beginning of period 60,055 464,619
--------- ---------
CASH AND EQUIVALENTS, end of period $ 11,041 $ 152,754
========= =========
SUPPLEMENTAL DISCLOSURES
Interest paid $ -- $ --
Interest capitalized $ 76,672 $ --
Issuance of common stock for
Services rendered $ -- $ 45,819
Issuance of warrants for
services rendered $ -- $ 10,000
The accompanying notes are an integral part of these financial statements.
Page 5
DISCAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2000
1. Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for 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. All adjustments are
of a normal and recurring nature.
The results of operations for the interim periods are not necessarily indicative
of the results expected for the full year.
Certain 1999 amounts have been reclassified to confirm to the 2000 presentation.
2. Reorganization subsequent to bankruptcy
On June 4, 1999, as a result of a decline in the Company's results of operations
reflecting, among other factors, the deterioration in demand and selling prices,
the Company filed petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code and subsequently began operating its business as debtor
in possession under the supervision of the Bankruptcy Court. The reorganization
of the Company became effective December 28, 1999. As a result, the Company
recognized income of $902,474. All assets and liabilities of the Company were
removed from the books.
The assets and liabilities that are recorded in the accounts of the Company on
January 31, 2000 reflect activity since the reorganization.
DISCAS, INC. January 31, 2000 10-QSB
MANAGEMENT'S DISCUSSION and
ANALYSIS of FINANCIAL CONDITION and
RESULTS of OPERATIONS
EXTRAORDINARY ITEM
On June 4, 1999 the Company filed for Chapter 11 reorganization in the New
Haven, Connecticut Bankruptcy Court in response to the demand by a secured
creditor for surrender of all assets pursuant to loan agreement defaults by the
Company. Management was advised by counsel that this filing was necessary in
order to prevent a complete and immediate shut-down of the Company, which would
not be in the best interests of unsecured creditors, stockholders and customers
who rely on Discas as their sole source of supply of various proprietary
compounds and horticultural containers.
The Company has operated as debtor in possession since early June, 1999 and has
met requirements of the Bankruptcy Court to continue operating as debtor in
possession until December23, 1999, when the Company's Amended Plan of
Reorganization was confirmed by the Bankruptcy Court following affirmative votes
in favor of the Plan from all classes of interests.
The Company has operated as debtor in possession since early June, 1999 and has
met requirements of the Bankruptcy Court to continue operating as debtor in
possession until December.
Page 6
A Proposed Plan of Reorganization was presented in early November, 1999 to the
secured creditor, the unsecured creditor's committee and other interested
parties. On November 24, 1999 the Court approved a Disclosure Statement with
respect to the Plan. An Amended Plan of Reorganization "the Plan" and an Amended
Disclosure Statement were filed on December 3, 1999 and an Order was issued on
that date: A.) approving the Plan and Disclosure Statement and fixing the date
for distribution of these documents along with a copy of the Order and an
Official Form Ballot, to all creditors and equity security holders for the
purpose of voting on the Plan, B.) fixing the date December 21, 1999 as the
deadline for receiving written ballots of acceptance or rejection, and C.)
fixing the date of December 22, 1999 for a hearing to consider confirmation of
the Amended Plan in the United States Bankruptcy Court.
On December 22 and December 23, 1999 the Ballot count was disclosed approving
the Plan and a final settlement was negotiated relating to a carryover tax
liability to the City of Waterbury. The Bankruptcy Court confirmed the Amended
Plan of Reorganization on December 23, 1999.
The Company immediately surrendered all assets in accordance with the Plan and
closed operations. On January 1, 2000 the Company began operating as a marketing
and technical services business, representing NEWCO/New Christie Ventures, LLC
in the sale of horticultural containers, following NEWCO's purchase of the
Christie Products business assets in accordance with the terms of the Plan.
The Plan also provides that the Interest Holders (stock holders of Discas, Inc.
common stock) will retain their corporate stock in the Company, but will receive
no distribution of funds or property. The Plan allows the continuation of
DISCAS, INC. as a publicly trading company and retains any potential future
credits for loss carryforwards against potential future profits.
As a result of the reorganization, the Company recognized income of $902,474 and
all assets and liabilities of the Company were removed from the books. The
assets and liabilities that are recorded on the accounts of the Company on
January 31, 2000 reflect activity since the reorganization. The operating
results for the three-month period ended January 31, 2000 include two months
operating as debtor in possession in the former manufacturing processes and one
month operating as commission sales agent.
The President and Marketing Manager have agreed to remain with the Company and
are the two sole employees as of January 31, 2000. The Plan of Reorganization
calls for the Company to develop new clients in the fields of technical and
sales services, and possibly add more horticultural products to the
Christie/NEWCO container line. The President has agreed to assume the
responsibility of acting CFO in addition to administrative and sales activities.
The Company has cancelled all previous building leases and is sub-letting a
portion of its former office space in the Waterbury plant.
The Company will attempt to continue as a trading public entity in order to
attract potential investors interested in gaining public status. There can be no
assurance that such investors will be found or that the funds will be available
to complete audited financial statements required to maintain trading status on
the OTC market.
RESULTS OF OPERATIONS
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions for 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 period are not indicative of the results expected for
subsequent periods because the nature of the business has changed as a result of
the Plan of Reorganization, which became effective in late December, 1999.
Page 7
THREE-MONTH PERIODS ENDED JANUARY 31, 2000 and 1999
Sales decreased by $463,476, or approximately 64.4%, to $256,120 for the
three-month period ended January 31, 2000, as compared to $719,866 for the
three-month period ended January 31, 1999. The reduction in sales is
attributable to the winding down and subsequent shutdown of Waterbury
manufacturing plant in December, 1999, in accordance with the Plan of
Reorganization approved by the Bankruptcy Court.
Cost of goods decreased by $507,947, or approximately 72.8%, to $189,792 for the
three-month period ended in January 31, 2000, as compared to $697,739 for the
three-month period ended January 31, 1999. The decrease in cost of goods sold
was attributable to the reduced sales volume associated with the reorganization
of the Company into a services oriented business.
Gross profit increased by $44,201 to $66,328 for the three-month period ended
January 31, 2000, as compared with a gross profit of $22,127 for the three-month
period ended January 31, 1999.
Selling, general and administrative costs decreased by $127,313 or approximately
38.2%, to $205,624 for the three-month period ended January 31, 2000 as compared
to $139,296 for the three-month period ended January 31, 1999.
Operating loss decreased by $171,514 or approximately 55.2%, to $158,305for the
three-month period ended January 31, 2000, as compared to a loss of $310,810 for
the three-month period ended January 31, 1999. The operating loss decrease was
attributable to reduced manufacturing and SGA casts associated with the winding
down of the manufacturing operation.
Net profit, including extraordinary gain of $902,474 from the forgiveness of
debt associated with the bankruptcy reorganization, was $744,169 for the
three-month period ended January 31, 2000. Net loss before the extraordinary
gain decreased by $188,011, or approximately 54.3%, to $158,305 for the
three-month period ended January 31, 2000, as compared to a net loss of $346,316
for the three-month period ended January 31, 1999. The decrease in net loss
before the extraordinary item resulted from increased manufacturing efficiencies
and decreased SGA costs.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR PROVISION" OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
When used in this report, the words "believe," "plan," "anticipates," "expects"
and similar expressions are intended to identify "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
are subject to certain risks and uncertainties, including those discussed below,
that could cause actual results to differ materially from those stated. All of
these forward-looking statements are based on estimates and assumptions made by
management of the Company, which although believed to be reasonable, are
inherently uncertain and difficult to predict. There can be no assurance that
the benefits or results anticipated in these forward-looking statements will be
achieved. 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, certain of which are
described herein, that could cause actual results to differ materially from
those indicated in the forward looking statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's activities as a manufacturing firm ceased on December 23, 1999.
The assets and liabilities of the Company as of that date were removed from the
books. A small loan from the President provided start-up working capital to
cover minimum operating expenses. Monthly commissions from the sale of Christie
containers are projected to be sufficient to cover the salaries for the two
employees and other operating expenses.
Page 8
Management does not anticipate a level of income sufficient to pay for an audit,
which is required for the continuation of trading status on the OTC market. The
Board of Directors has authorized the President to solicit investors willing to
pay for the auditing fees in exchange for securities of the Company or other
compensation which may result from a merger of Discas, Inc. with a company
interested in going public via a merger.
The Company does not anticipate the need for financing for its marketing
activities beyond the initial start-up officer loan.
There can be no assurance that the Company will be able to maintain its current
OTC trading status during the period required to find an investor and complete
the overdue audited financial reports.
As disclosed in Form 10-KSB for fiscal year ended April 31, 1999, Discas
securities were moved from the NASDAQ SmallCap Market to the OTC Bulletin Board
on February 9, 1999. On February 24, 1999, the Company submitted a request for
review of the Qualification Hearing Panel decision. The Company has been
notified that the Review Panel's decision to move the Company securities to the
OTC bulletin Board will remain in effect.
MANAGEMENT
The directors and executive officers of the company are follows:
Name Age Position
- ---- --- --------
Patrick A. DePaolo, Sr. 58 Chairman of the Board of Directors
Chief Executive Officer, President
and Chief Financial Officer
Thomas R. Tomaszek 48 Director
Stephen P. DePaolo 35 Director
John Carroll 54 Director
Patrick A. DePaolo, Chairman of the Board of Directors, President, CEO
and CFO. Prior to founding Discas in 1985, Mr. DePaolo worked at Uniroyal
Chemical Corp. for 11 years where he has overall responsibility for the
development and marketing of thermoplastic elastomers. In 1974, he established
Prolastomer, Inc, ("Prolastomer") to develop compounds for footwear, sporting
goods and automotive applications. Mr. DePaolo has extensive management
experience in the field of plastics compounding and processing and considered a
leading technical expert in developing new applications for scrap polymers. He
has degrees in Chemical Engineering (B.S.) from the University of Massachusetts
at Amherst and Polymer Chemistry (M.S.) from Southern Connecticut State
University and has published articles and text book chapters in the field of
polymer chemistry. Mr. DePaolo has extensive business experience and has founded
or been a partner in several plastics companies including J-Von, Bailey III,
Inc., Prolastomer, and NexVal Plastics. Of these, only J-Von remains in
existence, and the Company conducts a substantial amount of business with J-Von.
See "Certain Transactions" and "Risk Factors - Possible Conflicts of Interest."
Thomas R. Tomaszek, Director. Mr. Tomaszek has over 20 years management
experience in plastics, recycling equipment, design, and operations. In addition
to his experience in equipment and facility development, Mr. Tomaszek has held
senior marketing positions with 3 plastics manufacturing firms, Rapid Granulator
Company, Nelmor Company and Eaglebrook-East. He was also manager of
manufacturing operations of Plastics Again, a Genpak and Mobil Corporation joint
venture polystyrene recycling facility and, more recently, from post-consumer
polyethylene film and plastic bottle recycling plant. From 1993 to 1996 he was
Vice President and General Manager of operations at SBU Operations, a recycling
equipment manufacturing subsidiary of DelCorp., Inc. Mr. Tomaszek joined Discas
in April, 1996.
Page 9
Stephen P. DePaolo, Director. Mr. DePaolo has worked at Discas in
production, marketing and purchasing since 1985 and currently manages feedstock
sourcing and markets. He has developed advertising and publicity programs
covering Discas materials, and has established approvals as suppliers to
Wal-Mart Stores Inc, and McDonalds Corp. Mr. DePaolo gained a dual B.A. degree
from Northwestern University in Business Administration and Marketing. Stephen
DePaolo is the son of Patrick A. DePaolo.
John Carroll, Director. Mr. Carroll became a Director of the Company in
November, 1996. Mr. Carroll is the founder, Chairman of the Board and Chief
Executive Officer of Newgrange Co., a holding company created in 1990, which
controls various commercial entities, several of which are in the polymer
industry. Prior to founding Newgrange Co., Mr. Carroll served as Chief Financial
Officer of Leach and Garner Manufacturing Co., and worked at Arthur D. Little
for 12 years as a consultant. Mr. Carroll received an M.B.A. from the Graduate
School of Business of Columbia University. Mr. Carroll is currently managing
member of J-Von, and a director of Chesterton Co., Leach and Gardner
Manufacturing and ATP, Inc. See "Certain Transactions."
Employment Agreements
Mr. DePaolo has served as Chairman of the Board, Chief Executive
Officer and President of the Company pursuant to a five year Employment
Agreement. This agreement was terminated on December 23, 1999. Mr, DePaolo has
agreed to remain with the Company as President, Chairman of the Board and acting
Chief Financial Officer for one year for compensation which includes a modest
salary, employee stock options, commission incentives and customary fringe
benefits, as determined by the Board of Directors.
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: April 10, 2001 By /s/ Patrick A. DePaolo, Sr.
------------------------------------
Patrick A. DePaolo, Sr.
Chairman, President, CEO and CFO
Page 10