Attached files
| file | filename |
|---|---|
| EX-32.1 - DRS Inc. | ex32-1.htm |
| EX-31.2 - DRS Inc. | ex31-2.htm |
| EX-31.1 - DRS Inc. | ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending: March 31, 2011
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number:
DRS Inc.
(Exact Name of Registrant as Specified in its Charter)
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Nevada
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20-5914452
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification
No.)
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4004 NE 4th St., Suite 107-315, Renton, WA
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98056
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(Address of principal executive offices)
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(Zip Code)
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(206) 920-9104
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(Registrant’s Telephone Number, Including Area Code)
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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. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
We had 18,882,268 shares outstanding of common stock as of May 23, 2011.
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Table of Contents
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PART I – FINANCIAL INFORMATION
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Item 1
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Financial Statements
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3
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Item 2
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Management’s Discussion and Analysis and Plan of Operation
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15
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Item 3
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Quantitative and Qualitative Disclosures about Market Risk
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17
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Item 4
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Controls and Procedures
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17
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PART II – OTHER INFORMATION
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Item 1
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Legal Procedures
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18
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Item 2
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Unregistered Sales of Equity Securities and Use of Proceeds
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18
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Item 3
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Defaults upon Senior Securities
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18
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Item 4
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Submission of Matters to a Vote of Security Holders
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18
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Item 5
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Other Information
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19
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Item 6
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Exhibits
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19
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
As of March 31, 2011 and June 30, 2010
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ASSETS
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31-Mar-11
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30-Jun-10
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||||||
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Current assets:
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||||||||
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Cash & short term deposits
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$ | 2,939 | $ | 24,500 | ||||
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Accounts receivable (net of allowance for bad debt)
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8,041 | 139,461 | ||||||
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Accounts receivable- related parties
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0 | 6,882 | ||||||
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Stock subscription receivable
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10,966 | 4,950 | ||||||
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Total current assets
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$ | 21,946 | $ | 175,793 | ||||
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Other assets:
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||||||||
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Fixed assets- net
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176,223 | 362,067 | ||||||
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Security deposit- related party
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254,770 | 254,770 | ||||||
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Total assets
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452,939 | $ | 792,630 | |||||
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LIABILITIES AND SHAREHOLDERS' DEFICIT
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Current liabilities:
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||||||||
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Accounts payable & accrued expenses
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633,111 | $ | 438,403 | |||||
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Deferred income – related party
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40,000 | 40,000 | ||||||
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Notes payable
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300,000 | 300,000 | ||||||
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Advances payable
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37,235 | 0 | ||||||
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Loans payable - shareholder
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461,417 | 328,545 | ||||||
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Capital lease payable- short term
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61,788 | 119,718 | ||||||
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Total current liabilities
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1,533,551 | $ | 1,226,666 | |||||
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Convertible debenture payable - net
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25,057 | 0 | ||||||
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Capital lease payable
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170,922 | 214,999 | ||||||
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Shareholders' equity:
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||||||||
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Common Stock - $.001 par value, authorized 25,000,000 shares,
issued and outstanding, 17,785,718 shares at 6/30/10 and
18,882,268 at 3/31/11
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17,796 | $ | 17,785 | |||||
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Additional paid in capital
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12,367,928 | 11,747,036 | ||||||
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Retained deficit
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(13,662,315 | ) | (12,413,856 | ) | ||||
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Total shareholders' deficit
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(1,276,591 | ) | (649,035 | ) | ||||
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Total Liabilities & Shareholders' Deficit
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452,939 | $ | 792,630 | |||||
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See the notes to the financial statements.
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-3-
Statements of Operations
For the Quarters Ended March 31, 2011 and March, 2010
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9 Months
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9 Months
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3 Months
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3 Months
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|||||||||||||
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Revenues:
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31-Mar-11
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31-Mar-10
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31-Mar-11
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31-Mar-10
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||||||||||||
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Net revenues
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$ | 316,550 | $ | 1,222,052 | $ | 0 | $ | 251,131 | ||||||||
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Net revenues - related parties
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7,051 | 125,455 | 0 | 55,451 | ||||||||||||
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Cost of revenues
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(622,529 | ) | (1,215,658 | ) | (31,052 | ) | (311,022 | ) | ||||||||
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Cost of revenues- related party
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(9,000 | ) | (81,250 | ) | 0 | (37,263 | ) | |||||||||
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Gross margin (loss)
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(307,928 | ) | 50,599 | (31,052 | ) | (41,703 | ) | |||||||||
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General and administrative expenses:
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General administration
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$ | 800,538 | $ | 697,929 | $ | (356 | ) | $ | 383,453 | |||||||
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Total general & administrative expenses
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800,538 | 697,929 | (356 | ) | 383,453 | |||||||||||
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Net loss from operations
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$ | (1,108,466 | ) | $ | (647,330 | ) | $ | (30,696 | ) | $ | (425,156 | ) | ||||
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Other revenues (expenses):
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||||||||||||||||
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Interest expense
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(99,292 | ) | (88,249 | ) | (20,954 | ) | (42,058 | ) | ||||||||
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Loss on asset disposal
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(40,701 | ) | 0 | (40,701 | ) | 0 | ||||||||||
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Net loss before provision for income
taxes
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$ | (1,248,459 | ) | $ | (735,579 | ) | $ | (92,351 | ) | $ | (467,214 | ) | ||||
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Provision for income taxes
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0 | 0 | 0 | 0 | ||||||||||||
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Net loss
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$ | (1,248,459 | ) | $ | (735,579 | ) | $ | (92,351 | ) | $ | (467,214 | ) | ||||
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Loss per common share:
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||||||||||||||||
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Basic & fully diluted
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$ | (0.07 | ) | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.03 | ) | ||||
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Weighted average of common shares:
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||||||||||||||||
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Basic & fully diluted
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18,006,635 | 16,467,528 | 17,785,718 | 17,605,044 | ||||||||||||
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See the notes to the financial statements.
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-4-
Statements of Cash Flows
For the Quarters Ended March 31, 2011 and March 31, 2010
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Operating Activities:
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31-Mar-11
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31-March-10
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Net loss
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$ | (1,248,459 | ) | $ | (735,579 | ) | ||
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Adjustments to reconcile net loss items
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not requiring the use of cash:
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Consulting expense
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571,042 | 337,500 | ||||||
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Depreciation expense
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82,249 | 163,387 | ||||||
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Bad debt expense
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(22,180 | ) | 0 | |||||
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Interest expense
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0 | 3,448 | ||||||
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Loss on asset disposals
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40,701 | 0 | ||||||
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Changes in other operating assets and liabilities :
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||||||||
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Accounts receivable
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153,600 | (282,424 | ) | |||||
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Accounts receivable- related parties
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6,882 | 6,733 | ||||||
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Stock subscription receivable
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4,950 | 0 | ||||||
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Accounts payable
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194,708 | (21,139 | ) | |||||
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Net cash used by operations
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$ | (216,507 | ) | $ | (528,074 | ) | ||
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Investing Activities:
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Purchase of equipment
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$ | 62,894 | $ | (39,915 | ) | |||
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Net cash used by investing activities
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62,894 | (39,915 | ) | |||||
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Financing Activities:
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Proceeds from convertible debenture issuance
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$ | 63,952 | $ | 0 | ||||
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Issuance of common stock
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0 | 489,750 | ||||||
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Loans from shareholder
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110,928 | 200,996 | ||||||
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Proceeds from loans payable
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59,179 | 0 | ||||||
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Payment of capital lease
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(102,007 | ) | (114,003 | ) | ||||
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Net cash provided by financing activities
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132,052 | 576,743 | ||||||
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Net increase (decrease) in cash during the period
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$ | (21,561 | ) | $ | 8,754 | |||
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Cash balance at July 1st
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24,500 | 18,481 | ||||||
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Cash balance at March 31st
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$ | 2,939 | $ | 27,235 | ||||
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Supplemental disclosures of cash flow information:
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Interest paid during the period
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$ | 84,801 | ||||||
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Income taxes paid during the period
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$ | 0 | $ | 0 | ||||
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See the notes to the financial statements.
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-5-
Statement of Changes in Shareholder’s Deficit
For the Nine Months Ended March 31, 2011 and March 31, 2010
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Common Shares
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Par Value
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Additional Paid in
Capital
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Retained Deficit
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Shareholders’
Deficit
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Balance at June 30, 2010
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17,785,718 | $ | 17,785 | $ | 11,747,036 | $ | (12,413,856 | ) | $ | (649,035 | ) | |||||||||
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Issuance of common stock
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1,096,550 | 11 | 10,955 | 10,966 | ||||||||||||||||
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Issuance of options
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571,042 | 571,042 | ||||||||||||||||||
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Issuance of convertible debentures
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38,895 | 38,895 | ||||||||||||||||||
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Net loss for the fiscal year
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(1,248,459 | ) | (1,248,459 | ) | ||||||||||||||||
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Balance at March 31, 2011
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18,882,268 | $ | 17,796 | $ | 12,367,928 | $ | (13,662,315 | ) | $ | (1,276,591 | ) | |||||||||
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Balance at June 30, 2009
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15,903,718 | $ | 15,903 | $ | 11,458,893 | $ | (11,627,483 | ) | $ | (152,687 | ) | |||||||||
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Issuance of common stock
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1,150,000 | 1,150 | 488,600 | 489,750 | ||||||||||||||||
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Issued common stock for services
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750,000 | 750 | 336,750 | 337,500 | ||||||||||||||||
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Net loss for the period
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(735,579 | ) | (735,579 | ) | ||||||||||||||||
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Balance at March 31, 2010
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17,803,718 | $ | 17,803 | $ | 12,284,243 | $ | (12,363,062 | ) | $ | (61,016 | ) | |||||||||
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See the note to the Financial Statements
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-6-
DRS Inc.
Notes to the Financial Statements
For the Quarters Ended March 31, 2011 and March 31, 2010
1. Organization of the Company and Significant Accounting Principles
DRS Inc. (the “Company”) is a corporation formed in November 2006 in the state of Nevada. The Company removes drywall and other rubbish from construction sites for disposal and recycling. The Company operates mainly in the state of Washington.
Use of Estimates- The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make reasonable estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses at the date of the financial statements and for the year they include. Actual results may differ from these estimates.
Cash- For the purpose of calculating changes in cash flows, cash includes all cash balances and highly liquid short-term investments with maturity dates of three months or less.
Fixed Assets- Fixed assets are stated at cost. Depreciation expense is computed using the straight-line method over the estimated useful life of the asset. The following is a summary of the estimated useful lives used in computing depreciation expense:
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Office equipment
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3 years
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Vehicles
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5 years
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Equipment
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3 Years
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Furniture & fixtures
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5 Years
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Expenditures for major repairs and renewals that extend the useful life of the asset are capitalized. Minor repair expenditures are charged to expense as incurred.
Long Lived Assets- The Company reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount.
Income taxes- The Company accounts for income taxes in accordance with generally accepted accounting principles which require an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between financial statement and income tax bases of assets and liabilities that will result in taxable income or deductible expenses in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets and liabilities to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period adjusted for the change during the period in deferred tax assets and liabilities.
-7-
The Company follows the accounting requirements associated with uncertainty in income taxes using the provisions of Financial Accounting Standards Board (FASB) ASC 740, Income Taxes. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the positions will be sustained upon examination by the tax authorities. It also provides guidance for de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of March 31, 2011, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. All tax returns from fiscal years 2006 to 2009 are subject to IRS audit.
Revenue Recognition- The Company realizes revenues from drywall removal, scrapping, and installation jobs when the existence of an unconditional binding arrangement with a client is present, the work has been performed, the Company fees are determined and fixed, and the assurance of the revenue collection is reasonably secured. Costs incurred to remove or install the drywall and dispose waste are charged to cost of revenues. Such costs include the cost of labor and supplies needed to remove waste from construction sites, the depreciation cost on the vehicles need to remove the waste, and fuel costs.
Bad Debt Expense- The Company provides, through charges to income, a charge for bad debt expense, which is based upon management's evaluation of numerous factors. These factors include economic conditions prevailing, a predictive analysis of the outcome of the current portfolio by client, and prior credit loss experience of each client. The Company uses the information from this analysis to develop an estimate of bad debt reserve based upon the amount of accounts receivable by client at the balance sheet date. The Company’s reserve for bad debt is $49,893 at March 31, 2011 and $72,073 at June 30, 2010.
2. Net Loss per Share
Basic net loss per share has been computed based on the weighted average of common shares outstanding during the years. Diluted net loss per share gives the effect of outstanding common stock equivalents of the options outstanding at period end. The effects on net loss per share of the common stock equivalents, however, are not included in the calculation of net loss per share since their inclusion would be anti-dilutive.
Net loss per common share has been computed as follows:
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31-Mar-11
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31-Mar-10
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|||||||
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Net loss
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$ | (1,248,459 | ) | $ | (735,579 | ) | ||
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Weighted average of shares outstanding
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18,006,635 | 16,467,528 | ||||||
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Loss per common share:
|
||||||||
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Basic & fully diluted
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$ | (0.07 | ) | $ | (0.04 | ) | ||
-8-
3. Concentration of Credit Risks
The Company’s president and former secretary/treasurer have provided personal guarantees on some of the leased vehicles. A withdrawal of this support may have a material adverse effect on the Company’s ability to lease equipment. In addition, the president and former secretary/treasurer combined own approximately 61% of the Company and therefore have the majority votes to elect all of the board of directors and control all of the Company’s operations.
4. Provision for Income Taxes
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Provision for income taxes is comprised of the following:
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31-Mar-11
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31-Mar-10
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||||||
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Net loss before provision for income taxes
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$ | (1,248,459 | ) | $ | (735,579 | ) | ||
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Current tax expense:
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||||||||
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Federal
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$ | 0 | $ | 0 | ||||
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State
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0 | 0 | ||||||
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Total
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$ | 0 | $ | 0 | ||||
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||||||||
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Less deferred tax benefit:
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||||||||
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Timing differences
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(875,504 | ) | (355,986 | ) | ||||
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Allowance for recoverability
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875,504 | 355,986 | ||||||
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Provision for income taxes
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$ | 0 | $ | 0 | ||||
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A reconciliation of provision for income taxes at the statutory rate to provision
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||||||||
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for income taxes at the Company's effective tax rate is as follows:
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||||||||
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Statutory U.S. federal rate
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34 | % | 34 | % | ||||
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Statutory state and local income tax
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10 | % | 10 | % | ||||
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Less allowance for tax recoverability
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-44 | % | -44 | % | ||||
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Effective rate
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0 | % | 0 | % | ||||
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Deferred income taxes are comprised of the following:
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||||||||
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Tax loss carryforward
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$ | 875,504 | $ | 355,986 | ||||
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Allowance for recoverability
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(875,504 | ) | (355,986 | ) | ||||
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Deferred tax benefit
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$ | 0 | $ | 0 | ||||
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Note: The deferred tax asset arising from the tax loss carryforward expires in fiscal years 2026 to 2031 and may not be recoverable upon the purchase of the Company under current IRS statutes.
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-9-
5. Issuance of Common Stock Options
During the nine months ended March 31, 2011, the Company issued 1,500,000 options to purchase 1,500,000 shares of common stock at $0.07 per share to a financing company as part of a factoring agreement. The factoring agreement allowed the Company to sell certain receivables to the factoring company at an interest rate of 2%. This agreement has expired and all amounts repaid in full. The options expire in July 2011, unless exercised.
The Company applies the Black Sholes option pricing model to value its issuance of options. The Company estimated certain parameters of the model at issuance as follows; volatility is 21%, dividend yield is 0%, and a risk free interest rate of 0.5%. Using the model, the Company determined the value of the issuance to be $571,042 and expensed the amount in the statement of operations for the nine months ended March 31, 2011.
A list of options outstanding is as follows:
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Average
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||||||||||||
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Average
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Years to
|
|||||||||||
|
Amount
|
Exercise Price
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Maturity
|
||||||||||
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Outstanding at June 30, 2010
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3,249,664 | $ | 0.41 | 1.63 | ||||||||
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Issued
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1,500,000 | |||||||||||
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Expired
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(1,216,332 | ) | ||||||||||
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Exercised
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0 | |||||||||||
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Outstanding at March 31, 2011
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3,533,332 | $ | 0.22 | 3.65 | ||||||||
6. Fixed Assets- Net
The following table is a summary of fixed assets at March 31, 2011 and June 30, 2010:
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31-Mar
|
30-Jun-10
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|||||||
|
Vehicles
|
$ | 240,000 | $ | 457,000 | ||||
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Equipment
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190,061 | 227,459 | ||||||
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Office equipment
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6,532 | 6,532 | ||||||
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Furniture & fixtures
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0 | 15,035 | ||||||
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Accumulated depreciation
|
(260, 370 | ) | (343,959 | ) | ||||
|
Fixed assets- net
|
$ | 176,223 | $ | 362,067 | ||||
-10-
Assets leased under capital lease agreements, more fully discussed in Note 7, are $390,081 at March 31, 2011 and $597,081 at June 30, 2010. Depreciation expense on these leased assets for the nine months ended March 31, 2011 and March 31, 2010 is $77,533 and $132,146, respectively.
During the nine months ended March 31, 2011, the Company disposed of $253,625 of assets and recorded a loss on the disposal of $40,701. In addition, the Company abandoned some of its furniture and fixtures in unused warehouse space and recorded an impairment expense of $10,473.
7. Commitments and Contingencies
The Company has entered into various capital lease agreements for the vehicle equipment. Future minimum lease payments required under these leases is as follows:
|
2011
|
$ | 78,228 | ||
|
2012
|
77,658 | |||
|
2013
|
74,400 | |||
|
2014
|
38,562 | |||
|
Total minimum lease payments
|
$ | 268,848 | ||
|
Less amounts representing interest
|
(36,138 | ) | ||
|
Present value of net minimum lease payments
|
$ | 232,710 |
8. Litigation
The following is a summary of litigation to which the company has been a party. There are currently three lawsuits outstanding.
McEvoy Oil Company sued for non-payment of invoices totalling $17,709.51. On December 16, 2010, a judgment was granted to the plaintiff, awarding interest and costs totalling $5,445.06. In addition, plaintiff is entitled to 18% interest on the judgment amount until it is paid in full. As of March 31, 2011, the total amount accrued was $23,325.85.
Pacific Fibre Products Inc. filed a lawsuit for non-payment of invoices totalling $8,853.60. On September 24, 2010, the plaintiff was granted a judgment, awarding interest and costs totalling $1,913.54. In addition, plaintiff is entitled to receive 12% interest on the judgment amount until it is paid in full. In February, 2011, the Company paid the plantiff $4,000 in full settlement of the judgement.
-11-
Poly-America L.P. filed a lawsuit for non-payment of invoices totalling $7,540.60. On October 22, 2009, plaintiff was granted a judgment, awarding it interest and costs totalling $1,708.00. In addition, plaintiff is entitled to receive 5% interest on the judgment amount until it is paid in full. As of March 31, 2011, the total amount accrued was $9,799.72.
Scan Coin North, Inc. filed a lawsuit for non-payment of invoices totalling $5,762.55. On December 7, 2010, plaintiff was granted a judgment, awarding it interest and costs totalling $3,323.28. In addition, plaintiff is entitled to receive 5% interest on the judgment amount until it is paid in full. As of March 31, 2011, the total amount accrued was $9,193.37.
Industrial Hydraulic Services filed a lawsuit for non-payment of invoices totalling $3,047.91, which has not been concluded. As of March 31, 2011, the total amount accrued was $4,047.91.
National Service bureau filed a lawsuit for non-payment of invoices totaling $4,488.21, which has not been concluded. As of March 31, 2011, the total amount accrued was $5,488.21.
Nelson Distributing, Inc. filed a lawsuit for non-payment of invoices totaling $37,320.07. On December 15, 2010, plaintiff was granted a judgment, awarding it interest and costs totalling $6,827.13. In addition, plaintiff is entitled to receive 18% interest on the judgment amount until it is paid in full. As of March 31, 2011, the total amount accrued was $44,495.54.
During the quarter ended March 31, 2011, Teletrac Inc. filed a suit against the company claiming an unpaid invoice balance of $30,960.30 plus 12% interest since March 28, 2010, attorney’s fees and court costs. This lawsuit has not been concluded.
Management intends to disclose each quarter any new lawsuits that are filed, as well as to provide periodic updates on existing lawsuits.
9. Related Party Transactions
The Company has entered into equipment rental agreements with the former secretary/treasurer of the Company and a majority shareholder. The rental agreements are on a month to month basis and the Company has deposited $227,681 as security with this related party to secure the rental agreements. The deposits are unsecured and non interest bearing.
The Company has received advances from the president of the Company and other shareholders of $439,473 through March 31, 2011. The advances are secured by the receivables of the Company, are due on demand, and have no stated interest rate. The Company imputed an interest rate of 10.67% on the advances and has recorded the interest expense in the statement of operations.
-12-
10. Debt
In September 2010, the Company issued a convertible debenture to a creditor and received proceeds of $55,564. The debenture matures in September 2013, has an interest rate of 7%, and is convertible at $0.40 per share. As a result of the issue, the Company recorded a beneficial conversion feature of $38,895. The beneficial conversion feature is recorded as equity and will be amortized to interest expense over the life of the debenture.
A schedule of debt outstanding at March 31, 2011 is as follows:
|
Lender
|
Face Amount
|
Interest Rate
|
Maturity Date
|
Collateral
|
Approximate Fair Value
|
|||||
|
Creditor
|
$200,000
|
10.00%
|
Demand
|
Accounts receivable
|
$198,500
|
|||||
|
Creditor
|
$100,000
|
12.00%
|
Demand
|
Accounts receivable
|
$99,250
|
11. Going Concern
The accompanying financial statements have been presented in accordance with generally accepted accounting principles, which assume the continuity of the Company as a going concern. However, the Company has incurred significant losses since its inception and continues to rely on financing and the issuance of shares to raise capital to fund its business operations.
The Company intends to refocus its attention on the drywall scrap recycling business. For this purpose, the Company anticipates that an initial capital infusion of up to $1 million is needed to repurchase the drywall scrap recycling operation previously owned by the Company and position the Company for future growth. Follow-on investment will be required depending upon the rate of expansion of the recycling business. Management intends to issue stock through a private placement pursuant to Section 4(2) of The Securities Act of 1933.
12. Subsequent Events
The Company has made a review of material subsequent events from March 31, 2011 through the date of this report and found no material subsequent events reportable during this period.
13. Executive Compensation
In the nine months ended March 31, 2011, our President, Daniel Mendes chose to take zero compensation in return for his services as the Company’s principal executive officer and the principal financial officer. He made this choice so that he would not be a financial burden to the company and because if the company became successful they would be adequately compensated through the appreciation in the value of his shares of common stock that he already owns. As such, the financial statements reflect a lower loss than what would have been the case had he received compensation. The market value of total compensation of the services provided by Daniel Mendes during the nine month period was approximately $150,000
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14. Segment Reporting
The result of operations by segment is as follows:
|
31-Mar-11
|
31-Mar-10
|
|||||||
|
Sales:
|
||||||||
|
Drywall recycling
|
$ | 47 | $ | 101,590 | ||||
|
Scrapping
|
45,332 | 577,991 | ||||||
|
Drywall installation
|
278,222 | 667,926 | ||||||
|
Total sales
|
$ | 323,601 | $ | 1,347,507 | ||||
|
Earnings
|
||||||||
|
Drywall recycling
|
$ | 47 | $ | (29,387 | ) | |||
|
Scrapping
|
(68,948 | ) | (78,377 | ) | ||||
|
Drywall installation
|
(239,027 | ) | 158,363 | |||||
|
Corporate
|
(940,531 | ) | (786,178 | ) | ||||
|
Total earnings
|
$ | (1,248,459 | ) | $ | (735,579 | ) | ||
|
Depreciation
|
||||||||
|
Drywall recycling
|
$ | 0 | $ | 25,141 | ||||
|
Scrapping
|
58,397 | 76,118 | ||||||
|
Drywall Installation
|
23,852 | 62,128 | ||||||
|
Corporate
|
0 | 0 | ||||||
|
Total depreciation
|
$ | 82,249 | $ | 163,387 | ||||
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
You should read the following discussion and analysis in conjunction with the Consolidated Financial Statements and Notes thereto, and the other financial data appearing elsewhere in this Report.
The information set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among others (i) expected changes in the Company’s revenues and profitability, (ii) prospective business opportunities and (iii) the Company’s strategy for financing its business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to the plans, objectives and expectations of the Company for future operations. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of its knowledge of its business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this report should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. In light of these risks and uncertainties, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. The foregoing review of important factors should not be construed as exhaustive. The Company undertakes no obligation to release publicly the results of any future revisions it may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Overview
The Company was incorporated in November 2006 and during the fiscal year ended June 30, 2010 and the first quarter of the current fiscal year was focused on the installation of drywall and the removal of drywall waste from construction sites for disposal and recycling in the Northwest United States. Until May, 2009, DRS had owned a facility that recycles scrap drywall into gypsum powder and paper for sale to farmers in Washington State. At that time, the recycling operation was taken over by a former employee and DRS entered into an operating agreement whereby it became entitled to receive 2% of the revenues of the new operating company.
In September, 2010, we decided to refocus our attention on the drywall scrap recycling operations, while withdrawing for the time-being from both the drywall installation business and the drywall scrapping business. To this end, we intend to raise capital to repurchase the drywall scrap recycling processing operation that we previously owned, as well as to expand the recycling operation to other regions of the country by opening new facilities, based on what we learned when we were previously involved in the drywall scrap recycling business. We believe we need an initial capital infusion of up to $1 million in order to re-enter the scrap drywall recycling business, and position the company for growth. In addition follow-on investment will be required depending on how aggressively we intend to expand.
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Results of Operations
For the Nine Months ending March 31, 2011 and March 31, 2010
Sales revenue in the nine month period ended March 31, 2011 was $316,550, compared to $1,222,052 during the nine month period ended March 31, 2010. It is important to note that the Company produced no revenue during the quarter ended March 31, 2011 or the quarter ended December 31, 2010, due to our decision in September 2010 to exit the drywall installation and drywall scrapping businesses. This decision was made because of the deteriorating ability of the Company to attract profitable bidding opportunities for its installation and scrapping businesses.
We intend to generate revenues in the future by re-entering the drywall recycling business. In the meantime, General and Administrative expenses are being kept to a bare minimum in order to keep losses and cash requirements as low as possible. Thus net loss from operations for the quarter was $30,696, compared to a net loss from operations of $1,108,466 for the nine months ended March 31, 2011. It is our intention to continue to minimize our losses while we raise capital to restart the business.
Liquidity & Capital Resources
Cash on hand at March 31, 2011 was $2,939, compared to $24,500 at June 30, 2010. During the nine month period ended March 31, 2011, the company used $216,507 in operations, comprised of the net loss of $1,248,459, offset by non-cash charges of $653,291, and reductions in accounts receivable and increases in accounts payable. The cash that was used in operations was offset by shareholder loans and a convertible loan, as well as using up the cash on hand at June 30, 2010.
Based upon current plans, we expect to incur operating losses in future periods. We cannot guarantee that we will be successful in generating sufficient revenues to support operations in the future. Failure to generate sufficient revenues will cause us to go out of business. Due to the significant decreases in housing starts between 2006 and 2009, there is a great deal of uncertainty regarding the amount of revenue that can be generated. However, we believe that by focusing on the processing of drywall scrap into recycled products, we will be operating in the segment of the business that is least likely to fluctuate with rises and falls in housing starts because a significant portion of the revenues will be derived from sources outside of the housing industry.
It is our intention to refocus our attention on the drywall scrap recycling business. For this purpose, we anticipate that an initial capital infusion of up to $1 million is needed to repurchase the drywall scrap recycling operation previously owned by the Company and position the Company for future growth. Follow-on investment will be required depending upon the rate of expansion of the recycling business. We intend to issue stock through a private placement using a FINRA-registered broker dealer. While there can be no assurance of a successful raise, we have every expectation that we can meet our capital needs until such time as the recycling operations achieve profitability.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not hold and assets or liabilities requiring disclosure under this item.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures.
Our management, with the participation of our President, who is our chief executive officer, and our Secretary/Treasurer, who is our chief financial officer, (the role of Secretary/Treasurer and hence Chief Financial Officer has temporarily been assumed by our President, stemming from the resignation of our former Secretary/Treasurer), has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), in connection with the preparation of this Quarterly Report on Form 10-Q, as of March 31, 2011. Based on the review described above, our President and Secretary/Treasurer determined that our disclosure controls and procedures were effective as of the end of the period covered by this report, and that no changes to controls and procedures were made or were needed to be during the last quarter that materially affected, or was reasonably likely to materially affect, internal control over financial reporting.
Internal Control Over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.
The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. In addition, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Our management assessed our internal control over financial reporting as of March 31, 2011 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such assessment, our management concluded that our internal control over financial reporting was effective as of March 31, 2011 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
There were no changes in our internal control over financial reporting that occurred during the third fiscal quarter ended March 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following is a summary of litigation to which the company has been a party. There are currently three lawsuits outstanding.
McEvoy Oil Company sued for non-payment of invoices totalling $17,709.51. On December 16, 2010, a judgment was granted to the plaintiff, awarding interest and costs totalling $5,445.06. In addition, plaintiff is entitled to 18% interest on the judgment amount until it is paid in full. As of March 31, 2011, the total amount accrued was $23,325.85.
Pacific Fibre Products Inc. filed a lawsuit for non-payment of invoices totalling $8,853.60. On September 24, 2010, the plaintiff was granted a judgment, awarding interest and costs totalling $1,913.54. In addition, plaintiff is entitled to receive 12% interest on the judgment amount until it is paid in full. In February, 2011, the Company paid the plantiff $4,000 in full settlement of the judgement.
Poly-America L.P. filed a lawsuit for non-payment of invoices totalling $7,540.60. On October 22, 2009, plaintiff was granted a judgment, awarding it interest and costs totalling $1,708.00. In addition, plaintiff is entitled to receive 5% interest on the judgment amount until it is paid in full. As of March 31, 2011, the total amount accrued was $9,799.72.
Scan Coin North, Inc. filed a lawsuit for non-payment of invoices totalling $5,762.55. On December 7, 2010, plaintiff was granted a judgment, awarding it interest and costs totalling $3,323.28. In addition, plaintiff is entitled to receive 5% interest on the judgment amount until it is paid in full. As of March 31, 2011, the total amount accrued was $9,193.37.
Industrial Hydraulic Services filed a lawsuit for non-payment of invoices totalling $3,047.91, which has not been concluded. As of March 31, 2011, the total amount accrued was $4,047.91.
National Service bureau filed a lawsuit for non-payment of invoices totaling $4,488.21, which has not been concluded. As of March 31, 2011, the total amount accrued was $5,488.21.
Nelson Distributing, Inc. filed a lawsuit for non-payment of invoices totaling $37,320.07. On December 15, 2010, plaintiff was granted a judgment, awarding it interest and costs totalling $6,827.13. In addition, plaintiff is entitled to receive 18% interest on the judgment amount until it is paid in full. As of March 31, 2011, the total amount accrued was $44,495.54.
During the quarter ended March 31, 2011, Teletrac Inc. filed a suit against the company claiming an unpaid invoice balance of $30,960.30 plus 12% interest since March 28, 2010, attorney’s fees and court costs. This lawsuit has not been concluded.
Management intends to disclose each quarter any new lawsuits that are filed, as well as to provide periodic updates on existing lawsuits.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-18-
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The Exhibit Index attached behind the signature page is incorporated herein by reference. The exhibits required by Item 601 of Regulations S-K are attached.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
DRS Inc.
|
||
|
By:
|
 |
|
|
Daniel Mendes, President, Sec/Treas.
|
||
|
May 23, 2011
|
(principal executive officer)
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
By:
|
|
|
|
Daniel Mendes, President, Secretary/Treasurer and Director
(principal executive officer, and principal financial/accounting officer)
|
||
|
May 23, 2011
|
||
-19-
EXHIBIT INDEX
* The Exhibit attached to this Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
Exhibit No. SEC Ref. No. Title of Document
|
1.
|
31.1 Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
2.
|
31.2 Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
3.
|
32.1 and 32.2 Certification of the Principal Executive Officer and Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
|
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