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 September 30, 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)
Registrant's telephone number, including area code 612/305-0339
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 October 25, 1995, there were 2,376,140 shares of the Registrant's Common
Stock outstanding.
Total number of pages: 11
Exhibit index on page: 11
PART 1 - FINANCIAL INFORMATION
DISCUS ACQUISITION CORPORATION AND SUBSIDIARIES
(FORMERLY KNOWN AS DISCUS CORPORATION AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS September 30, 1995 December 25, 1994
<S> <C> <C>
Cash and cash equivalents $ 2,272,878 $ 2,608,299
Total current assets 2,272,878 2,608,299
Deferred acquisition costs incurred in
connection with proposed acquisition 111,179
Property and equipment, net -0- 60,437
Total assets $ 2,384,057 $ 2,668,736
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt -0- 2,326
Accounts payable 112,753 20,633
Income taxes payable 103,000
Accrued expenses 7,850
Net liabilities of discontinued
operations 2,064 56,492
Total current liabilities 114,817 190,301
Long term debt, less current portion -0- 42,674
Shareholders' equity:
Common Stock, no par value; 10,000,000 shares
authorized; 2,376,140 and 2,356,140 shares
issued and outstanding in 1995 and 1994,
respectively 3,774,831 3,769,031
Accumulated deficit (1,505,591) (1,333,270)
Total shareholders' equity 2,269,240 2,435,761
Total liabilities and
shareholders' equity $ 2,384,057 $ 2,668,736
</TABLE>
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)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, 1995 Sept. 25, 1994 Sept. 30, 1995 Sept. 25, 1994
<S> <C> <C> <C> <C>
Interest income $ 28,380 $ 27,290 $ 93,508 $ 27,290
Corporate expense (43,366) (73,868) (222,526) (73,868)
Loss on disposal of corporate
furniture fixtures (43,303) (43,303)
Loss from continuing operations (58,289) (46,578) (172,321) (46,578)
Loss from discontinued operations associated
with restaurant operations
disposed of in June, 1994 (less
applicable income taxes) (25,982) (390,239)
Gain on disposal of all restaurant
operations (less applicable
income taxes of $302,400) -0- 2,259,899
Net income (loss) (58,289) (72,560) (172,321) 1,823,082
Per share amounts:
Gain (loss) from
continuing operations $ (.02) $ (.02) $ (.07) $ (.02)
Gain (loss) from
discontinued operations $ $ (.01) $ $ .88
Net income (loss) $ (.02) $ (.03) $ (.07) $ .86
Weighted average number of
shares outstanding $ 2,370,645 $ 2,293,307 $ 2,360,977 $ 2,128,054
</TABLE>
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)
Nine Months Ended Nine Months Ended
Sept. 30, 1995 Sept. 25, 1994
Cash flows (used in) from operating activities:
Net income (loss) $ (172,321) $ 1,823,082
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation of property
and equipment 25,994 120,375
Amortization of equipment
held under capital leases 51,569
Amortization of deferred
franchise and royalty costs 33,727
Gain on disposal of all
restaurant operations (2,259,899)
Loss on disposal of
furniture fixtures 43,303
Noncurrent liabilities (2,735)
Termination of restaurant building
lease obligations (510,000)
Transaction, severance and
other settlement expenses (531,970)
Changes in operating assets
and liabilities, exclusive of
investing and financing activities (60,751) (1,316,460)
Net cash (used in) from
operating activities (163,775) (2,592,311)
Cash flows from (used in) investing activities:
Proceeds from disposal of all
operating assets 5,879,120
Acquisition of property and
equipment (20,328)
Proceeds from sale of property
and equipment 446,405
Decrease in other assets 59,843
Deferred acquisition cost incurred
in connection with proposed acquisition (111,179)
DISCUS ACQUISITION CORPORATION AND SUBSIDIARIES
(FORMERLY KNOWN AS DISCUS CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Increase in Cash
(Unaudited)
Nine Months Ended Nine Months Ended
Sept. 30, 1995 Sept. 25, 1994
Net cash from (used in)
investing activities 335,226 5,918,635
Cash flows from (used in) financing activities:
Long-term debt payments (512,672) (557,543)
Notes payable payments (236,893)
Mortgage settlement agreement (93,677)
Proceeds from issuance of Common Stock
and exercise of stock options 5,800 162,820
Purchase of Treasury Stock (1,248)
Termination charges for equipment
lease obligations (76,353)
Net cash from (used in)
financing activities (506,872) (802,894)
(Decrease) increase in cash
and cash equivalents $ (335,421) $ 2,523,430
Cash and cash equivalents:
Beginning of year 2,608,299 201,478
End of period $ 2,272,878 $ 2,724,908
Changes in assets and liabilities,
exclusive of investing and
financing activities:
Inventories 18,793
Preopening costs 30,247
Other current assets 211,200
Accounts payable, accrued
expenses and income
taxes payable (60,751) (1,576,700)
$ (60,751) $(1,316,460)
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 September 30, 1995, and for the quarters and nine months ended September 30,
1995, and September 25, 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.
Effective July 25, 1995, the Board of Directors of the Company voted to change
the Company's fiscal year end from the last Sunday in December of each year to
December 31st. This change in financial reporting did not have a material impact
on the Company's reported results of operations or cash flows for the new
quarter ended September 30, 1995, the first quarter reflecting the newly adopted
calendar year end.
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. In
August, 1995 the Company satisfied its notes payable and its interest in the
restaurant facility related to the subsidiary and terminated its lease
obligation. The Company had 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).
Also, in June 1994, the Company sold idle equipment from two restaurants closed
in fiscal year 1993 for $10,000. In August of 1995, the Company sold the
majority of its remaining restaurant land, building, and equipment for $540,000.
As part of this transaction, the Company satisfied the $398,508 mortgage
obligation related to the building and land. In addition, for $65,000 the
Company entered into a one-year non-compete agreement with the purchaser of the
land and buildings. Recognition of proceeds received associated with the
non-compete agreement has been deferred and is included in the balance sheet as
a component of "Net liabilities of discontinued operations", and is being
amortized over the one-year non-compete period.
The following schedule provides revenues and expenses for the discontinued
operations for the three and nine month periods ended September 25, 1994.
Three Months Ended Nine Months Ended
Sept. 25, 1994 Sept. 25, 1994
Restaurant sales 5,476,819
Other revenues 37,294 180,420
Total revenues 37,294 5,657,239
Cost of sales 1,633,396
Restaurant operating costs 43,229 3,835,451
Corporate expenses 496,689
Depreciation and amortization 12,050 213,909
Interest, net 7,997 78,033
Income tax provision (210,000)
Total expenses 63,276 6,047,478
Loss from discontinued
operations $ (25,982) $ (390,239)
Gain on disposal of all
restaurant operations (less
applicable income taxes of
$302,400) $ 2,259,899
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.
6. Proposed Acquisition:
The Company has entered into a non-binding Letter of Intent to purchase a
manufacturer of industrial and consumer metal products. The proposed acquisition
price of approximately $24.0 million will be financed primarily by bank
financing, funds generated by the issuance of approximately $4.0 million of
Common and Preferred Stock of the Company to be sold to a group of investors in
a private placement transaction, and by the seller financing of a portion of the
purchase price. The acquisition is subject to the Company entering into a
definitive purchase agreement, completion of financing and other customary
closing conditions. The Company anticipates completing the acquisition in the
latter part of November 1995. There can be no assurance that all conditions to
closing will be satisfied or that such acquisition will be completed. In
connection with the proposed acquisition, the Company incurred direct
acquisition costs of $111,200 which was capitalized at September 30, 1995.
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 sold the majority of its
remaining restaurant property on September 12th, 1995. 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 third quarter of 1995, the Company earned $28,380 in interest
income on invested funds. The Company incurred $43,366 in corporate charges.
During the nine months ended September 30, 1995, the Company earned $93,508 in
interest income on invested funds and incurred $222,526 in corporate charges.
The Company continues to seek and evaluate business acquisition candidates
and incurs costs associated with such activity, including but not limited to
approximately $8,000 a month for an office, related administrative and executive
support. Acquisition evaluation costs are also incurred on an ongoing basis,
such as travel and professional support. Such future costs are not estimable at
this time as they vary with activity levels.
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. There were no restaurant sales for the third quarter of
1994. Restaurant operating costs were $43,229, resulting in a net loss of
$25,982 for the third quarter of 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased to $2,272,878 at
September 30, 1995 from $2,608,299 at December 25, 1994. The decrease primarily
resulted from payment of expenses related to discontinued operations that were
accrued at December 25, 1994, and of corporate expenses in excess of interest
income.
The Company all but completed the liquidation of residual restaurant assets
in the third quarter of 1995 with the sale of a majority of the remaining
restaurant property, and the settlement of a remaining lease obligation.
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.
The Company has entered into a non-binding Letter of Intent to purchase a
manufacturer of industrial and consumer metal products. The proposed acquisition
price of approximately $24.0 million will be financed primarily by bank
financing, funds generated by the issuance of approximately $4.0 million of
Common and Preferred Stock of the Company to be sold to a group of investors in
a private placement transaction, and by the seller financing of a portion of the
purchase price. The acquisition is subject to the Company entering into a
definitive purchase agreement, completion of financing and other customary
closing conditions. The Company anticipates completing the acquisition in the
latter part of November 1995. There can be no assurance that all conditions to
closing will be satisfied or that such acquisition will be completed. In
connection with the proposed acquisition, the Company incurred direct
acquisition costs of $111,200 which was capitalized at September 30, 1995.
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: October 25, 1995 /s/ William H. Spell
William H. Spell
Chief Executive Officer
Date October 25, 1995 /s/ Bruce A. Richard
Bruce A. Richard
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-26-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,272,878
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,272,878
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,384,057
<CURRENT-LIABILITIES> 114,817
<BONDS> 0
<COMMON> 3,774,831
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,384,057
<SALES> 0
<TOTAL-REVENUES> 93,508
<CGS> 0
<TOTAL-COSTS> 265,829
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (172,321)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (172,321)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
