DISCAS, INC.
Filing Type: 10QSB
Description: Quarterly Report
Filing Date: May 7, 2001
Period End: January 31, 2001
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, Analysis of Financial Condition.......................6
Results of Operations..........................................................7
Liquidity and Capital Resources................................................9
Management.....................................................................9
Employment Agreements ........................................................10
Signatures....................................................................10
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 January 31, 2001
-------------------------------------------------
[ ] 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.)
31 Sheridan Drive, Naugatuck, Connecticut 06708
................................................................................
(Address of principal executive offices) (Zip Code)
203-920-9478
................................................................................
(Registrant's telephone number, including area code)
567-1 South Leonard Street, Waterbury, Connecticut, 06708
................................................................................
(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 Form at (check one)
|_| Yes |X| No
2
DISCAS, INC. AND SUBSIDIARIESDISCAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, April 30,
2001 2000
----------- -----------
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 12,771 $ 9,564
Accounts receivable, net of allowance for
doubtful accounts of $0 and $0 26,023 56,060
----------- -----------
Total current assets 38,794 65,624
Other assets
Deposits and other assets 179 179
----------- -----------
$ 38,973 $ 65,803
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
Accounts payable $ 17,925 $ 13,215
Accrued expenses 8,018 15,000
Due to related parties 9,591 18,076
----------- -----------
Total current liabilities 35,534 46,291
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 (4,702,006) (4,685,933)
----------- -----------
Total stockholders' equity 3,439 19,512
----------- -----------
$ 38,973 $ 65,803
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
DISCAS, INC. AND SUBSIDIARIES
CONSOLIDATED STAEMENTS OF OPERATIONS
(UNADUITED)
Three Three Nine Nine
Months ended Months ended Months ended Months ended
January 31, January 31, January 31, January 31,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Sales $ 25,254 $ 256,120 $ 175,552 $ 1,747,171
Cost of sales 350 189,792 25,279 1,348,584
------------- ------------- ------------- -------------
Gross profit 24,904 66,328 150,273 398,587
Selling, general & admin. expenses 49,728 205,624 166,386 794,267
------------- ------------- ------------- -------------
Loss from operations (24,824) (139,296) (16,113) (395,680)
------------- ------------- ------------- -------------
Other income (expense) :
- - 63 -
Interest income - (19,009) (23) (82,723)
------------- ------------- ------------- -------------
Net other income (expense) - (19,009) (40) (82,723)
------------- ------------- ------------- -------------
(Loss) before extraordinary item (24,824) (158,305) (16,073) (478,403)
Extraordinary items:
Bankruptcy reorganization - 902,474 - 902,474
------------- ------------- ------------- -------------
Net income (loss) $ (24,824) $ 744,169 $ (16,073) $ 424,071
============= ============= ============= =============
Average number of shares outstanding 3,390,776 3,390,776 3,390,776 3,390,776
============= ============= ============= =============
Net loss per share (Basic & Diluted):
Loss before extraordinary items (0.01) (0.05) (0.00) (0.14)
Extraordinary items
Bankruptcy reorganization - 0.27 - 0.27
------------- ------------- ------------- -------------
Net income (loss) $ (0.01) $ 0.22 $ 0.00 $ 0.13
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements
4
DISCAS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended January 31,
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (16,073) $ 424,071
Adjustments to reconcile net loss to net
Cash used by operating activities:
Depreciation expense -- 163,906
Interest expense -- 76,672
Extraordinary item - reorganization -- (902,474)
Changes in assets and liabilities:
Decrease in accounts receivable 30,037 425,463
Decrease in inventory -- 66,255
Increase in other assets -- (12,879)
Increase in prepaid expenses -- (20,761)
Increase in accounts payable 4,711 44,336
Decrease in accrued expenses (15,468) (40,042)
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 3,207 224,547
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments on other asset -- --
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 -- (17,585)
Principal payments on line of credit -- (81,454)
Cash surrendered at reorganization -- (111,264)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES -- (244,389)
--------- ---------
NET DECREASE IN CASH AND EQUIVALENTS 3,207 (49,014)
CASH AND EQUIVALENTS, beginning of period 9,564 60,055
--------- ---------
CASH AND EQUIVALENTS, end of period $ 12,771 $ 11,041
========= =========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 23 $ --
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.
5
DISCAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2001
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 2000 amounts may have been reclassified to conform to the 2001
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, 2001 reflect activity since the reorganization.
DISCAS, INC. JANUARY 31, 2001 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 28, 1999 by the United States Bankruptcy Court in New Haven,
Connecticut. On June 4, 1999 the Company filed a petition for reorganization
under Chapter 11 of the United States Bankruptcy Code as a result of
deterioration in demand and 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 28, 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 January 31, 2001 reflect activity since
reorganization.
The Company's common stock continues to be traded on the spot market, but is no
longer listed on the OTC Bulletin Board. Management has been notified by the
agency of jurisdiction that OTC trading of the stock has been suspended and will
not be considered for relisting until audited financial statements and 10-KSB
and 10-QSB reports covering the past eighteen months are submitted 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.
6
The company has continued to pay monthly stock transfer fees in order to
maintain trading records in anticipation of becoming listed again on the OTC
Bulletin Board.
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
January 31, 2001 reflect a modest loss due primarily to reduced consulting fees
and sales commissions during the slow winter season for horticultural
containers.
The Company has accumulated net operating losses of approximately $1,581,954 as
of January 31, 2001, 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 have been the only full time employees of
the Company as of December 31,2000. Due to the financial condition of the
company, the President, CEO and Chairman has not received compensation in
January, 2001 and does not anticipate that the company will be able to pay him a
competitive salary in the future. The Board of Directors, absent the president's
vote, offered to compensate him with new issue stock grants and additional stock
options if he would remain and carry on the business plan of the company,
including completing a deal with Summa Capital to pay for audits in exchange for
250,000 new issued common shares, which are a condition for OTC Bulletin Board
listing to be reinstated. A part time financial assistant has been hired to
update and maintain 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 non-exclusive marketing agreement with a
foreign supplier of horticultural containers to sell their product line 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 is negotiating a joint
marketing/resale agreement with a Canadian Manufacturer to sell the toner based
compounds in North America.
Management has substantially completed the work necessary for the past due
10-KSB and 10-QSB reporting. Summa Capital, an investment and financial
consulting firm, has paid for audits and other accounting services 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. The board of directors
has authorized the filing required for the issuance of new shares. 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 are
anticipating filing of the 10-KSB and 10-QSB reports prior to the fiscal year
end date of April 30,2001.
The company moved its office and warehousing to a new location in the Naugatuck
Industrial Park on December 31, 2001 when the former facility lease expired.
RESULTS OF OPERATIONS
The results of operations for the three month period ended January 31, 2001 are
not necessarily indicative of the results expected for future periods because
the Company incurred one time expenses for relocating its operations during the
quarter and the slow winter sales season caused reduced sales commission income.
The company is evaluating new business opportunities in marketing and technical
services which could increase its income base as well as operating expenses.
Management is also in preliminary discussions with Summa Capital regarding a
plan to market Discas as a public merger partner if OTC trading status is
reinstated.
7
THREE-MONTH PERIODS ENDING January 31, 2001 and 2000
Sales decreased by $230,866, or approximately 90 %, to $25,254 for the three
month period ended January, 2001, as compared to $256,120 for the three month
period ended January 31, 2000. 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 $189,442, or 99.8%, to $350 for the three month
period ended January 31, 2001, as compared to $189,792 for the three month
period ended January 31, 2000. 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 $41,424 to $24,904 for the three-month ended January
31, 2001, as compared to with a gross profit of $66,328 for the three-month
period ended January 31, 2000. The decrease in gross profit was attributable to
decreased sales for the period. Gross profit as a percentage of sales increased
to 98.6% for the three-month period ended January 31, 2001, as compared 25.9%
for the three-month period ended January 31, 2000.
Selling, general and administrative costs decreased by $155,896 or approximately
75.8%, to $49,728 for the three-month period ended January 31, 2001, as compared
to $205,624 for the three-month period ended January 31, 2000. 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 $114,472 or approximately 82.2%, to $24,824 for the
three month period ended January 31, 2001, as compared to a loss of $139,296 for
the three-month period ended January 31, 2000. The operating results are
attributable to the change in nature of business, including reduced fixed and
variable costs associated with operating primarily as a sales and technical
service business.
Net loss was $24,824 for the three-month period ended January 31, 2001, as
compared to a net loss of $158,305, before extraordinary item, for the
three-month period ended January 31, 2000. The decrease in net loss was
attributable to the change in nature of the business, including reduced
operating and financing costs. A one time recognition of $902,474 in income
resulting from the reorganization of the company on December 28, 1999 resulted
in a net income of $744,169 for the three month period ending January 31, 2000.
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.
8
LIQUIDITY AND CAPITAL RESOURCES
The Company's activities as a manufacturing firm ceased December 28, 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. Commissions from the sale of Horticultural
containers and consulting fees totaled about 50% of operating costs for the
three-month period ended January 31, 2001. There is no assurance that future
income will be sufficient to cover current and projected operating and marketing
expenses.
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
and subsequently delisted on OTC Bulletin Board prior to January 31, 2001. 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 reinstated. There can be no assurances that the
Company will be able to reinstate its OTC trading status.
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 had 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 is considered a leading
technical expert in developing new applications from recycled and virgin
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, PASTANCH, LLC and NexVal Plastics. Of these, only
PASTANCH, Discas and J-Von remains in existence.
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 was Marketing
and Business Development Manager for Discas from April, 1996 until September
1999.
Stephen P. DePaolo, Director. Mr. DePaolo has worked at Discas in production,
marketing and purchasing positions 1985 until October 1999. He is currently
United States Marketing manager for a Canadian based plastic recycling company.
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.
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 New Grange, and a director of Chesterton Co., Leach and Gardner
Manufacturing and ATP, Inc. See "Certain Transactions."
Employment Agreements
Mr. Patrick DePaolo has served as Chairman of the Board, Chief Executive Officer
and President of the Company pursuant to a five year Employment Agreement
completed in August 1997 when the company went public. This agreement was
terminated on December 23, 1999 as a result of the reorganization of the company
under Chapter 11,. Mr. DePaolo agreed to remain with the Company as President,
Chairman of the Board and acting Chief Financial Officer for the one year period
from January 1, 2000 to December 31, 2000, for compensation which included a
modest salary, employee stock options, commission incentives and customary
fringe benefits, as determined by the Board of Directors. During this period Mr.
DePaolo did not receive his full salary or any commissions or benefits, other
than the customary fringe benefits. The Board of Directors, absent Mr. Depaolo's
vote, approved issuance of 300,000 options for year 200 employment of Mr.
DePaolo in January 2000. The Board has determined that the company cannot pay
Mr. DePaolo a fair salary for his services in the year 2001 and has offered to
compensate Mr. DePaolo with new issue common stock in addition to a modest
salary and other fringe benefits if he remains in his current management
position until the OTC trading and potential deals to market the public shell or
reorganize the company for the benefit of stockholders are resolved. Mr. DePaolo
has agreed to remain in these positions subject to a grant of 300,000 new shares
pursuant to an 8-S filing, and freedom to supplement his employment and
consulting income from other sources.
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: May 4, 2001 By /s/ Patrick A. DePaolo, Sr.
------------------------------------
Patrick A. DePaolo, Sr.
Chairman, President, CEO and CFO
10