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 June 25, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . . . . . . . to . . . . . . . . . .
Commission File No. 0-13826
DISCUS ACQUISITION CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1456350
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 South Seventh Street, Suite 2430, Minneapolis, MN 55402
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code 612/305-0339
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 July 31, 1995, there were 2,376,140 shares of the Registrant's common stock
outstanding.
This document contains 11 pages.
PART 1 - FINANCIAL INFORMATION
DISCUS ACQUISITION CORPORATION AND SUBSIDIARIES
(FORMERLY KNOWN AS DISCUS CORPORATION AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS June 25, 1995 December 25, 1994
<S> <C> <C>
Cash and cash equivalents $ 2,252,796 $ 2,608,299
Total current assets 2,252,796 2,608,299
Property and equipment, net 49,658 60,437
Total assets $ 2,302,454 $ 2,668,736
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 8,657 2,326
Accounts payable 47,367 20,633
Income taxes payable 103,000
Accrued expenses 7,850
Net (assets) liabilities of discontinued
operations, including restaurant held for
sale encumbered by a mortgage of $404,005
at June 25, 1995 (111,643) 56,492
Total current liabilities (55,619) 190,301
Long term debt, less current portion 36,343 42,674
Shareholders' equity:
Common stock, no par value; 10,000,000
shares authorized; 2,356,140
shares issued and out-
standing in 1995 and 1994 3,769,031 3,769,031
Accumulated deficit (1,447,301) (1,333,270)
Total shareholders' equity 2,321,730 2,435,761
Total liabilities and
shareholders' equity $ 2,302,454 $ 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 Six Months Ended
June 25, 1995 June 26, 1994 June 25, 1995 June 26, 1994
<S> <C> <C> <C> <C>
Interest income $ 33,934 $ $ 65,128 $
Corporate expenses (89,243) (179,159)
Loss from continuing operations (55,309) (114,031)
Loss from discontinued operations
associated with restaurant operations
disposed of in June, 1994 (less
applicable income taxes) (48,688) (364,257)
Gain on disposal of all restaurant
operations (less applicable
income taxes of $302,400) 2,259,899 2,259,899
Net income (loss) (55,309) 2,211,211 (114,031) 1,895,642
Per share amounts:
Gain (loss) from
continuing operations $ (.02) $ $ (.05) $
Gain (loss) from
discontinued operations $ $ .96 $ $ .82
Net income (loss) $ (.02) $ .96 $ (.05) $ .82
Weighted average number of
shares outstanding $2,356,140 $2,308,403 $2,356,140 $2,305,125
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
DISCUS ACQUISITION CORPORATION AND SUBSIDIARIES
(FORMERLY KNOWN AS DISCUS CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase in Cash
(Unaudited)
Six Months Six Months
Ended Ended
June 25, 1995 June 26, 1994
Cash flows (used in) from operating activities:
Net income (loss) $ (114,031) $ 1,895,642
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation of property
and equipment 21,994 108,325
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)
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 (203,971) (1,084,302)
Net cash (used in) from
operating activities (296,008) (2,299,643)
Cash flows from (used in) investing activities:
Proceeds from disposal of all
operating assets 5,879,120
Acquisition of property and
equipment (20,328)
Investment in marketable securities (1,538,140)
Proceeds from sale of property
and equipment 4,172
Decrease in other assets 49,014
Net cash from (used in)
investing activities 4,172 4,369,666
Cash flows from (used in) financing activities:
Long-term debt payments (63,667) (441,210)
Notes payable payments (236,893)
Mortgage settlement agreement (93,677)
Proceeds from issuance of Common Stock 75,000
Termination charges for equipment
lease obligations (76,353)
Net cash from (used in)
financing activities (63,667) (773,133)
(Decrease) increase in cash
and cash equivalents $ (355,503) $ 1,296,890
Cash and cash equivalents:
Beginning of year 2,608,299 201,478
End of period $ 2,252,796 $ 1,498,368
Changes in assets and liabilities,
exclusive of investing and
financing activities:
Inventories 18,793
Preopening costs 30,247
Other current assets 152,211
Accounts payable, accrued
expenses and income
taxes payable (203,971) (1,285,553)
$ (203,971) $(1,084,302)
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 June 25, 1995, and for the quarters and six months ended June 25, 1995, and
June 26, 1994, reflect, in the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to fairly state the results
of operations for interim periods. The results of operations for any interim
period are not necessarily indicative of the results for the full year, and due
to the disposal of all restaurant operations, the Company will no longer report
any significant operating activities until such time as a new business is
acquired. The unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Company's December 25, 1994, Annual Report on Form 10-KSB for
the year ended December 25, 1994.
2. Net Loss Per Share:
Net loss per share has been computed by dividing net income by the weighted
average of common stock shares outstanding during each period. Common stock
equivalent shares, which relate to stock options outstanding are not included in
the weighted average because their effect is antidilutive in 1995 and 1994.
3. Cash and Cash Equivalents:
The Company considers deposits in banks, certificates of deposits and other
short-term investments with original maturities of three months or less when
purchased to be cash equivalents.
4. Discontinued Operations, Disposal of All Restaurant Operations:
On April 15, 1994, the Company signed an Asset Purchase Agreement with
Fuddruckers, Inc., its franchisor, that provided for the sale of substantially
all of the business and restaurant operating assets of seven of the Company's
ten Fuddruckers restaurants and its interest in all real estate leases and
certain other contracts, permits and licenses which are transferable. The
Agreement granted Fuddruckers, Inc. an option to purchase two additional
Fuddruckers restaurants from the Company.
The sale was approved by the Company's shareholders on June 7, 1994. On June 7,
1994, the sale of the restaurants (including the two option restaurants) was
completed. The sale price aggregated $5,869,000. The Company assigned, and
Fuddruckers assumed from the date of closing of the transaction, all real estate
leases associated with the nine restaurants. The Company satisfied all other
obligations, including royalties due to Fuddruckers, Inc. related to the nine
restaurants upon closing of the transaction.
On the above date the Company's shareholders approved a change in the Company's
name from Discus Corporation to Discus Acquisition Corporation.
Also, in June 1994, the Company closed its remaining Fuddruckers restaurant. The
Company plans to dispose of its interest in the restaurant facility which is
leased by a subsidiary (guaranteed by Discus Acquisition Corporation through
July, 1995) for $60,000 per year under a ten year lease that expires in 2003.
The Company has reduced the carrying value of the equipment in the restaurant to
estimated net realizable value and recorded estimated losses (including one year
of property lease commitments) through the anticipated date of disposition of
the restaurant property.
Also, in June 1994, the Company sold idle equipment from two restaurants closed
in fiscal year 1993 for $10,000. The Company plans to sell its remaining
restaurant land, building, and equipment which is rented to a limited
partnership. The property is encumbered by a mortgage of $404,005 and has a net
book value of $520,435 at June 25, 1995. The Company anticipates selling the
property for an amount greater than the net book value and mortgage obligation.
The following schedule provides revenues and expenses for the discontinued
operations for the three and six month periods ended June 26, 1994.
Three Months Six Months
Ended Ended
June 26, 1994 June 26, 1994
Restaurant sales 2,379,611 5,514,406
Other revenues 39,622 105,539
Total revenues 2,419,233 5,619,945
Cost of sales 704,123 1,633,396
Restaurant operating costs 1,627,416 3,792,222
Corporate expenses 246,267 496,689
Depreciation and amortization 77,470 201,859
Interest, net 25,045 70,036
Income tax provision (212,400) (210,000)
Total expenses 2,467,921 5,984,202
Loss from discontinued
operations $ (48,688) $ (364,257)
Pursuant to action taken by the Board of Directors, upon closing of the
transaction with Fuddruckers, Inc., all stock options under the Company's
Employee Stock Option Plan and Non-Qualified Stock Options became immediately
vested and exercisable and a significant number of new options will become
exercisable. (See Note 5 also.)
5. The Spell Group Agreement:
Pursuant to a Stock Purchase Agreement dated as of March 3, 1994, the Company
created a strategic relationship with the Spell Group to implement a plan
adopted by its Board of Directors to divest the Company of a majority of its
Fuddruckers restaurants (See Note 4) and thereafter to pursue an acquisition
strategy whereby the Company, using funds realized from the disposal of its
restaurants, together with such other financing as may be available, would
acquire one or more existing business operations. The Spell Group Agreement was
approved by the Company's shareholders on June 7, 1994. Pursuant to the terms of
the Spell Group Agreement, the Spell Group purchased from the Company 100,000
shares of the Common Stock of the Company at $.75 per share.
The Company granted to members of the Spell Group five year options to purchase
an aggregate of 100,000 shares of the Company's Common Stock at $.75 per share
and five year options to purchase an aggregate of 300,000 shares at $1.35 per
share. None of the options shall be exercisable until December 1, 1996, with 25%
of such options becoming exercisable on December 1, 1996 and 1997, and the
remainder becoming exercisable on December 1, 1998. The exercise of options,
however, will automatically accelerate to the date of closing by the Company of
an exchange of securities, sale, merger, consolidation or similar transaction
involving a reorganization of, or acquisition by, the Company.
DISCUS ACQUISITION CORPORATION AND SUBSIDIARIES
(FORMERLY KNOWN AS DISCUS CORPORATION AND SUBSIDIARIES)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As described in Note 4 of the Notes to Consolidated Financial Statements
included in this Report on Form 10-QSB, the Company disposed of all its
restaurant operations during June of 1994. The Company plans to sell its
remaining restaurant property which is rented to a limited partnership. As a
result, the Company will no longer report any significant operating activities
until such time as a business is acquired.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
During the second quarter of 1995, the Company earned $33,934 in interest
income on invested funds. The Company incurred $89,243 in corporate charges.
During the six months ended June 25, 1995, the Company earned $65,128 in
interest income on invested funds. The Company incurred $179,159 in corporate
charges, of which approximately $62,000 relates to direct costs incurred in the
evaluation of potential business acquisitions.
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. Restaurant sales for the second quarter of 1994 were
$2,379,611. Cost of sales were $704,123 and restaurant operating costs were
$1,627,416 resulting in a net loss of $48,688 for the second quarter of 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased to $2,252,796 at June 25,
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 anticipates the completion of the liquidation of residual
restaurant assets in the third quarter of 1995 with the sale 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.
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: August 9, 1995 /s/ William H. Spell
William H. Spell
Chief Executive Officer
Date August 9, 1995 /s/ Bruce A. Richard
Bruce A. Richard
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-26-1994
<PERIOD-END> JUN-25-1995
<CASH> 2,252,796
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,252,796
<PP&E> 204,084
<DEPRECIATION> (154,426)
<TOTAL-ASSETS> 2,302,454
<CURRENT-LIABILITIES> 55,619
<BONDS> (36,343)
<COMMON> (3,769,031)
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,302,454
<SALES> 0
<TOTAL-REVENUES> 65,128
<CGS> 0
<TOTAL-COSTS> 179,159
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (114,031)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (114,031)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
