DISCAS, INC.
Filing Type: 10QSB
Description: Quarterly Report
Filing Date: April 17, 2001
Period End: October 31, 2000
Primary Exchange: Boston Stock Exchange
Ticker: DSCS
Table of Contents
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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, Analysis of Financial Condition.......................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
Item 1
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 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
OCTOBER 31, APRIL 30,
2000 2000
(UNAUDITED) (AUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 47,575 $ 9,564
Accounts receivable, net of allowance for
doubtful accounts of $0 33,686 56,060
----------- -----------
Total current assets 81,261 65,624
----------- -----------
Other assets
Deposits and other assets 179 179
----------- -----------
$ 81,440 $ 65,803
=========== ===========
LIABILITIES AND DEFICIENCY IN ASSETS
Current liabilities:
Accounts payable $ 54 $ 13,215
Accrued expenses 35,048 15,000
Due to related party 18,077 18,076
----------- -----------
Total current liabilities 53,179 46,291
----------- -----------
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 (4,677,184) (4,685,933)
----------- -----------
Total stockholders' equity 28,261 19,512
----------- -----------
$ 81,440 $ 65,803
=========== ===========
The accompanying notes are an integral part of these financial statements.
Page 3
DISCAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE THREE SIX SIX
Months ended Months ended Months ended Months ended
October 31, October 31, October 31, October 31,
2000 1999 2000 1999
Sales $ 104,876 $ 834,038 $ 150,298 $ 1,491,051
Cost of Sales 20,777 585,107 24,929 1,158,792
----------- ----------- ----------- -----------
Gross Profit 84,099 248,931 125,369 332,259
Selling, General and
Administrative expenses 51,842 293,770 116,658 588,643
----------- ----------- ----------- -----------
Income (Loss) from
Operations 32,257 (44,839) 8,712 (256,384)
----------- ----------- ----------- -----------
Other income (expense):
Interest Income -- -- 63 --
Interest expense (12) (40,007) (24) (63,717)
----------- ----------- ----------- -----------
Net other income (expense) (12) (40,007) 39 (63,717)
----------- ----------- ----------- -----------
Net income (loss) $ 32,245 $ (84,846) $ 8,751 $ (320,097)
=========== =========== =========== ===========
Average number of shares
Outstanding 3,390,776 3,390,776 3,390,776 3,390,776
=========== =========== =========== ===========
Net loss per share (Basic and Diluted):
Net loss $ (0.01) $ (0.03) $ (0.00) $ (0.09)
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements
Page 4
DISCAS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended October 31,
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ 8,751 $(320,097)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation expense -- 163,906
Interest expense -- 76,672
Changes in assets and liabilities:
Decrease in accounts receivable 22,374 209,688
Decrease in inventory -- 82,075
Increase in other assets -- (12,700)
Increase in prepaid expenses -- (29,852)
(Decrease) Increase in accounts payable (13,162) 63,779
Increase (Decrease) in accrued expenses 20,048 (79,767)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 38,011 153,704
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property & equipment -- (29,172)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES -- (29,172)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable -- (34,086)
Principal payments on obligations under capital leases -- (11,457)
Principal payments on line of credit -- (81,454)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES -- (126,997)
--------- ---------
NET DECREASE IN CASH AND EQUIVALENTS 38,011 (2,465)
CASH AND EQUIVALENTS, beginning of period 9,564 60,055
--------- ---------
CASH AND EQUIVALENTS, end of period $ 47,575 $ 57,590
========= =========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 23 $ --
Interest capitalized $ -- $ 76,672
The accompanying notes are an integral part of these financial statements.
Page 5
DISCAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 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 1999 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 filed a petition 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
October 31, 2000 reflect activity since the reorganization.
DISCAS, INC. OCTOBER 31, 2000 10-QSB
MANAGEMENT'S DISCUSSION and
ANALYSIS of FINANCIAL CONDITION and
RESULTS of OPERATIONS
DISCAS, Inc. has been restructured as a marketing services and technical
services business in accordance with Plan of Reorganization confirmed on
December 23, 1999 by the United States Bankruptcy Court in New Haven,
Connecticut. On June 4, 1999 the Company filed a petition for reorganization
under Chapter 111 of the United States Bankruptcy Code as a result of
deterioration in demand selling prices, among other factors, 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 23, 1999 at which time the Company ended its manufacturing activities
and surrendered its assets. On January 1, 2000 the Company initiated its new
business plan to market horticultural containers and provide marketing and
technical services to New Christie Ventures, LLC., and other clients.
As a result, the Company recognized income of $902,474 and removed its assets
and liabilities from the books. The assets and liabilities that are recorded in
the accounts of the Company on October 31, 2000 reflect activity since
reorganization.
Page 6
The Company's common stock continues to be traded on the OTC Bulletin Board.
However, management has been notified by the agency of jurisdiction that OTC
trading of the stock will be suspended in the near future unless past due
audited financial statements and 10-KSB and 10-QSB reports covering the past
eighteen months are submitted promptly to the proper authority. The Plan of
Reorganization provides that holders of Discas, Inc. common stock will retain
their corporate stock in the Company, but will receive no distribution of funds
or property.
The accompanying unaudited 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. Results for the three-month period ending
October 31, 2000 reflect a modest income derived primarily from consulting fees
and sales commissions earned on the sale of Christie horticultural containers
pursuant to an exclusive sales contract with New Christie Ventures, LLC.
The Company has accumulated net operating losses of approximately $1,577,130 as
of October 31, 2000, which can be used to offset future earnings through the
year 2014. Accordingly, no provision for income taxes is recorded in the
financial statements. Furthermore, no deferred tax assets have been recorded due
to the uncertainty of the Company's ability to utilize the losses.
The President and Marketing Manager are the only full time employees of the
Company. A part time financial assistant has been hired to update the Company
books for auditing purposes. The Company has concentrated its efforts to develop
new clients in the fields of technical and sales services, and has negotiated a
marketing agreement with a foreign supplier of horticultural containers to sell
their product line limited in North America. This sales agreement will allow the
Company to increase its customer base and income stream while offering
additional products to the horticultural industry.
The Company completed a consulting project in August, 2000 for a major
international copy machine toner producer, and has negotiated a marketing/resale
agreement to be exclusive sales agent for the toner based compounds developed by
Discas pursuant to the consulting project.
Management has completed successful negotiations with an investment and
financial consulting company whereby this company will pay for audits required
for the Company to complete and submit overdue 10-KSB and 10-QSB reports, in
exchange for 250,000 shares of new issue common stock, subject to successful
establishment of future trading status as a public company on the OTC Bulletin
Board. The board of directors has approved the agreement, however, there can be
no assurance that the audits and required reports will be completed in a timely
manner sufficient to maintain trading status. Management and the investor have
contacted the proper authorities requesting an extension of trading status
following notification that trading of Discas, Inc.
Common stock is in the process of being suspended.
RESULTS OF OPERATIONS
The results of operations for the three month period ended October 31, 2000 are
not necessarily indicative of the results expected for future periods because
the Company is evaluating new business opportunities in marketing and technical
services which could increase its income base and operating expenses.
Management is also in preliminary discussions with an investor and a Canadian
company regarding a possible reverse merger.
THREE-MONTH PERIODS ENDING October 31, 2000 and 1999
Sales decreased by $729,162, or approximately 87.4 %, to $104,876 for the three
month period ended October, 2000, as compared to $834,038 for the three month
period ended October 31, 1999.
Page 7
The reduction in sales is attributable to the shutdown of all manufacturing
operations, the surrender of production assets and limited revenues from
consulting and marketing services, in accordance with the Plan of Reorganization
approved by the Bankruptcy Court.
Cost of goods sold decreased by $564,330, or 96.4%, to $20,777 for the three
month period ended October 31, 2000, as compared to $585,107 for the three month
period ended October 31, 1999. The decrease in cost of goods sold was
attributable to the change in business operations whereby the Company no longer
manufactures items for sale.
Gross profit decreased by $164,832 to $84,099 for the three-month ended October
31, 2000, as compared to with a gross profit of $242,931 for the three-month
period ended October 31, 1999. The decrease in gross profit was attributable to
decreased sales for the period. Gross profit as a percentage of sales increased
to 80% for the three-month period ended October 31, 2000, as compared 29.8% for
the three-month period ended October 31, 1999.
Selling, general and administrative costs decreased by $241,928 or approximately
82.4%, to $51,842 for the three-month period ended October 31, 2000, as compared
to $293,770 for the three-month period ended October 31, 1999. The decrease in
SGA costs is attributable to reduction in fixed overhead, financing costs and
employee levels associated with reorganization of the Company.
Operating loss decreased by $77,096 or approximately 172%, to a profit of
$32,257 for the three month period ended October 31, 2000, as compared to a loss
of $44,839 for the three-month period ended October 31, 1999. As a result the
company had its first profitable quarter under the new operating plan. The
operating results are attributable to the change in nature of business,
including reduced fixed and variable costs associated with operating primarily
as a service business and successful sales activities.
Net profit was $32,245 for the three-month period ended October 31, 2000, as
compared to a net loss of $84,846 for the three-month period ended October 31,
1999. The decrease in net loss was attributable to the change in nature of the
business, including reduced operating and financing 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 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 and consulting fees totaled about 115% of operating costs for the
three-month period ended October 31, 2000. There is no assurance that future
income will be sufficient to cover current and projected operating and marketing
expenses.
Page 8
As disclosed in Form 10-KSB for fiscal year ended April 31, 2000, Discas, Inc.
securities were moved from the NASDAQ SmallCap Market to the OTC Bulletin Board
on February 9, 1999. The Board of Directors has authorized the President to
conduct negotiations and solicit offers from potential investors and merger
partners desiring to become publicly traded via a deal with the Company,
assuming that the OTC trading status of the Company can be sustained or
reinstated. There can be no assurances that the Company will be able to maintain
its current OTC trading status during the period required to complete the
overdue audited financial and other reports.
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.
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.
Page 9
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