UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2010
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _________
Commission file number:
DRS Inc.
(Name of small business issuer in its charter)
Nevada
|
20-5914452
|
(State or other jurisdiction of
Incorporation or organization)
|
(IRS Employer Identification
Number)
|
5906-B 238
th
Street, SE ∙ Woodinville, Washington 98072
Post Office Box 726 ∙ Bothell, Washington 98041-0726
(Address of principal executive offices)
(866) 991-9960
(Issuer’s Telephone Number)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to filed such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] 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]
(
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:
As of March 31, 2010, the Company had 17,785,718 shares of common stock issued and outstanding.
FORM 10-Q – DRS INC.
INDEX
Part I. Financial Statements
|
Page
|
|
|
Item 1. Financial Statements
|
4
|
|
|
Balance Sheets as of March 31, 2010 (Unaudited) and June 30, 2009 (Audited)
|
4
|
|
|
Statements of Operations for the Nine Months and Quarters ended March 31, 2010
|
|
(Unaudited) and March 31, 2009 (Unaudited)
|
5
|
|
|
Statements of Cash Flows for the Nine Months ended March 31, 2010 (Unaudited)
|
|
and March 31, 2009 (Unaudited)
|
6
|
|
|
Statement of Changes in Shareholder’s Deficit for the Nine Months ended March 31,
|
|
2010 (Unaudited) and March 31, 2009 (Unaudited)
|
7
|
|
|
Notes to the Financial Statements for the Nine Months ended March 31, 2010 and
|
|
March 31, 2009
|
8
|
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Result
|
|
of Operations
|
15
|
|
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk
|
18
|
|
|
Item 4T. Controls and Procedures
|
19
|
|
|
Part II – Other Information
|
|
|
|
Item 1. Legal Proceedings
|
19
|
|
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
19
|
|
|
Item 3. Defaults Upon Senior Securities
|
19
|
|
|
Item 4. Submission of Matters to a Vote of Security Holders
|
20
|
|
|
Item 5. Other Information
|
20
|
|
|
Item 6. Exhibits
|
20
|
|
|
Signatures
|
20
|
|
|
Exhibit Index
|
21
|
DRS Inc.
Balance Sheets
As of March 31, 2010 and June 30, 2009
|
|
Unaudited
|
|
|
Audited
|
|
ASSETS
|
|
31-Mar-10
|
|
|
30-Jun-09
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash & short term deposits
|
|
$
|
27,235
|
|
|
$
|
18,481
|
|
Accounts receivable (net of allowance for bad debt)
|
|
|
611,461
|
|
|
|
329,037
|
|
Prepaid expenses
|
|
|
17,975
|
|
|
|
24,708
|
|
Total current assets
|
|
$
|
656,671
|
|
|
$
|
372,226
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Fixed assets- net
|
|
|
521,858
|
|
|
|
645,330
|
|
Security deposits- related party
|
|
|
262,769
|
|
|
|
262,769
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,441,298
|
|
|
$
|
1,280,325
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable & accrued expenses
|
|
$
|
444,749
|
|
|
$
|
465,888
|
|
Capital lease payable- short term
|
|
|
158,439
|
|
|
|
153,963
|
|
Total current liabilities
|
|
$
|
603,188
|
|
|
$
|
619,851
|
|
|
|
|
|
|
|
|
|
|
Capital lease payable- long term
|
|
|
278,641
|
|
|
|
397,120
|
|
Notes payable
|
|
|
300,000
|
|
|
|
300,000
|
|
Loan payable- shareholder
|
|
|
320,485
|
|
|
|
116,041
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
|
|
Common stock- $.001 par value, authorized 25,000,000 shares,
|
|
|
|
|
|
|
|
|
issued and outstanding, 15,903,718 shares at 6/30/09 and
|
|
|
|
|
|
|
|
|
17,785,718 at 3/31/10
|
|
$
|
17,785
|
|
|
$
|
15,903
|
|
Additional paid in capital
|
|
|
12,284,243
|
|
|
|
11,458,893
|
|
Retained deficit
|
|
|
(12,363,062
|
)
|
|
|
(11,627,483
|
)
|
Total shareholders' equity
|
|
|
(61,034
|
)
|
|
|
(152,687
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Shareholders' Equity
|
|
$
|
1,441,298
|
|
|
$
|
1,280,325
|
|
|
|
|
|
|
|
|
|
|
See the notes to the financial statements.
|
DRS Inc.
Statements of Operations
For the Nine Months and Quarters Ended March 31, 2010 and March 31, 2009
|
|
9 Months
|
|
|
9 Months
|
|
|
3 Months
|
|
|
3 Months
|
|
|
|
31-Mar-10
|
|
|
31-Mar-09
|
|
|
31-Mar-10
|
|
|
31-Mar-09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
1,347,507
|
|
|
$
|
2,747,542
|
|
|
$
|
306,582
|
|
|
$
|
1,066,590
|
|
Cost of revenues
|
|
|
(1,296,908
|
)
|
|
|
(2,121,765
|
)
|
|
|
(348,285
|
)
|
|
|
(623,837
|
)
|
Net revenues
|
|
$
|
50,599
|
|
|
$
|
625,777
|
|
|
$
|
(41,703
|
)
|
|
$
|
442,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General administration
|
|
$
|
697,929
|
|
|
$
|
765,399
|
|
|
$
|
383,453
|
|
|
$
|
448,695
|
|
Total general & administrative expenses
|
|
|
697,929
|
|
|
|
765,399
|
|
|
|
383,453
|
|
|
|
448,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from operations
|
|
$
|
(647,330
|
)
|
|
$
|
(139,622
|
)
|
|
$
|
(425,156
|
)
|
|
$
|
(5,942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
0
|
|
|
|
580
|
|
|
|
0
|
|
|
|
0
|
|
Interest expense
|
|
|
(88,249
|
)
|
|
|
(26,727
|
)
|
|
|
(42,058
|
)
|
|
|
(2,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before provision for income taxes
|
|
$
|
(735,579
|
)
|
|
$
|
(165,769
|
)
|
|
$
|
(467,214
|
)
|
|
$
|
(8,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(735,579
|
)
|
|
$
|
(165,769
|
)
|
|
$
|
(467,214
|
)
|
|
$
|
(8,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic & fully diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average of common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic & fully diluted
|
|
|
16,467,528
|
|
|
|
15,868,268
|
|
|
|
17,605,044
|
|
|
|
15,868,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the notes to the financial statements.
|
DRS Inc.
Statements of Cash Flows
For the Nine Months Ended March 31, 2010 and March 31, 2009
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
31-Mar-10
|
|
|
31-Mar-09
|
|
Operating Activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(735,579
|
)
|
|
$
|
(165,769
|
)
|
Adjustments to reconcile net loss items
|
|
|
|
|
|
|
|
|
not requiring the use of cash:
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
163,387
|
|
|
|
24,330
|
|
Bad debt expense
|
|
|
0
|
|
|
|
18,413
|
|
Interest expense
|
|
|
3,448
|
|
|
|
8,438
|
|
Consulting expense
|
|
|
337,500
|
|
|
|
0
|
|
Changes in other operating assets and liabilities :
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(282,424
|
)
|
|
|
(151,090
|
)
|
Prepaid expense
|
|
|
6,733
|
|
|
|
(58,288
|
)
|
Accounts payable
|
|
|
(21,139
|
)
|
|
|
259,639
|
|
Net cash used by operations
|
|
$
|
(528,074
|
)
|
|
$
|
(64,327
|
)
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Security deposits
|
|
$
|
0
|
|
|
$
|
(12,901
|
)
|
Purchase of equipment
|
|
|
(39,915
|
)
|
|
|
(89,844
|
)
|
Net cash used by investing activities
|
|
|
(39,915
|
)
|
|
|
(102,745
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
$
|
482,750
|
|
|
$
|
0
|
|
Subscriptions received
|
|
|
0
|
|
|
|
27,450
|
|
Options exercised
|
|
|
7,000
|
|
|
|
0
|
|
Loans from shareholder
|
|
|
200,996
|
|
|
|
145,343
|
|
Payment of capital lease
|
|
|
(114,003
|
)
|
|
|
(56,246
|
)
|
Net cash provided by financing activities
|
|
|
576,743
|
|
|
|
116,547
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash during the period
|
|
$
|
8,754
|
|
|
$
|
(50,525
|
)
|
|
|
|
|
|
|
|
|
|
Cash balance at July 1st
|
|
|
18,481
|
|
|
|
50,525
|
|
|
|
|
|
|
|
|
|
|
Cash balance at March 31st
|
|
$
|
27,235
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid during the period
|
|
$
|
84,801
|
|
|
$
|
18,289
|
|
Income taxes paid during the period
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
See the notes to the financial statements.
|
DRS Inc.
Statement of Changes in Shareholder’s Deficit
For the Nine Months Ended March 31, 2010 and March 31, 2009
(Unaudited)
|
|
Common
|
|
|
Common
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
|
|
|
Issue Price Per
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009
|
|
|
15,903,718
|
|
|
$
|
15,903
|
|
|
$
|
11,458,893
|
|
|
$
|
(11,627,483
|
)
|
|
$
|
(152,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
1,118,000
|
|
|
|
1,118
|
|
|
|
481,614
|
|
|
|
|
|
|
|
482,732
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to consultant
|
|
|
750,000
|
|
|
|
750
|
|
|
|
336,750
|
|
|
|
|
|
|
|
337,500
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
14,000
|
|
|
|
14
|
|
|
|
6,986
|
|
|
|
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(735,579
|
)
|
|
|
(735,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
|
17,785,718
|
|
|
$
|
17,785
|
|
|
$
|
12,284,243
|
|
|
$
|
(12,363,062
|
)
|
|
$
|
(61,034
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
|
15,868,268
|
|
|
$
|
15,868
|
|
|
$
|
11,423,478
|
|
|
$
|
(11,047,706
|
)
|
|
$
|
391,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions received
|
|
|
|
|
|
|
|
|
|
|
27,450
|
|
|
|
|
|
|
|
27,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(165,769
|
)
|
|
|
(165,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009
|
|
|
15,868,268
|
|
|
$
|
15,868
|
|
|
$
|
11,450,928
|
|
|
$
|
(11,213,475
|
)
|
|
$
|
253,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the notes to the financial statements.
|
DRS Inc.
Notes to the Financial Statements
For the Nine Months Ended March 31, 2010 and March 31, 2009
1.
|
Organization of the Company and Significant Accounting Principles
|
DRS Inc. (the “Company”) is a privately held 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:
Office equipment
|
3 years
|
Vehicles
|
5 years
|
Equipment
|
3 Years
|
Furniture & fixtures
|
5 Years
|
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 the Statement of Accounting Standards No. 109 (SFAS No. 109), "
Accounting for Income Taxes
". SFAS No. 109 requires 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.
Revenue Recognition
- the Company realizes revenues from drywall removal 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.
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, a predictive analysis of the outcome of the current portfolio and prior credit loss experience.
2. Net Loss per Share
The Company applies SFAS No. 128,
Earnings per Share
to compute net loss per share
.
In accordance with SFAS No. 128, 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 warrants outstanding. 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:
|
|
31-Mar-10
|
|
|
31-Mar-09
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(735,579
|
)
|
|
$
|
(165,769
|
)
|
|
|
|
|
|
|
|
|
|
Total common shares outstanding
|
|
|
17,785,718
|
|
|
|
15,868,268
|
|
|
|
|
|
|
|
|
|
|
Weighted average of shares outstanding
|
|
|
16,467,528
|
|
|
|
15,868,268
|
|
|
|
|
|
|
|
|
|
|
Loss per common share:
|
|
|
|
|
|
|
|
|
Basic & fully diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
3. Provision for Income Taxes
Provision for income taxes is comprised of the following:
|
|
31-Mar-10
|
|
|
31-Mar-09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before provision for income taxes
|
|
$
|
(735,579
|
)
|
|
$
|
(165,769
|
)
|
|
|
|
|
|
|
|
|
|
Current tax expense:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
0
|
|
|
$
|
0
|
|
State
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
Less deferred tax benefit:
|
|
|
|
|
|
|
|
|
Timing differences
|
|
|
(585,106
|
)
|
|
|
(355,986
|
)
|
Allowance for recoverability
|
|
|
585,106
|
|
|
|
355,986
|
|
Provision for income taxes
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of provision for income taxes at the statutory rate to provision
|
|
|
|
|
|
|
|
|
for income taxes at the Company's effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory U.S. federal rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Statutory state and local income tax
|
|
|
10
|
%
|
|
|
10
|
%
|
Less allowance for tax recoverability
|
|
|
-44
|
%
|
|
|
-44
|
%
|
Effective rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
Deferred income taxes are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing differences
|
|
$
|
585,106
|
|
|
$
|
355,986
|
|
Allowance for recoverability
|
|
|
(585,106
|
)
|
|
|
(355,986
|
)
|
Deferred tax benefit
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
Note: The deferred tax benefits arising from the timing differences expires in fiscal year 2029 and 2028
and may not be recoverable
upon the purchase of the Company under current IRS statutes.
|
|
4. Common Stock Options Outstanding
A list of options outstanding is as follows
:
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Years to
|
|
|
|
Amount
|
|
|
Exercise Price
|
|
|
Maturity
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
3,361,600
|
|
|
$
|
0.41
|
|
|
|
3.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2009
|
|
|
3,361,600
|
|
|
$
|
0.41
|
|
|
|
2.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(103,936
|
)
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(14,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010
|
|
|
3,249,664
|
|
|
$
|
0.40
|
|
|
|
1.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. General Administrative Expenses
A detail of general administrative expenses in the statement of operations is as follows:
|
|
31-Mar-10
|
|
|
31-Mar-09
|
|
|
|
|
|
|
|
|
Salaries & benefits
|
|
$
|
145,069
|
|
|
$
|
226,300
|
|
Automobile expense
|
|
|
0
|
|
|
|
7,056
|
|
Bad debt expense
|
|
|
0
|
|
|
|
18,413
|
|
Bank fees
|
|
|
3,648
|
|
|
|
1,141
|
|
Depreciation- office equipment
|
|
|
1,059
|
|
|
|
326
|
|
Insurance
|
|
|
30,465
|
|
|
|
48,950
|
|
Licenses
|
|
|
3,989
|
|
|
|
6,892
|
|
Marketing
|
|
|
338,027
|
|
|
|
31,251
|
|
Meals
|
|
|
213
|
|
|
|
4,334
|
|
Administration
|
|
|
4,525
|
|
|
|
72,656
|
|
Professionals & consulting fees
|
|
|
62,877
|
|
|
|
182,138
|
|
Rent expense
|
|
|
81,495
|
|
|
|
123,449
|
|
Taxes
|
|
|
26,562
|
|
|
|
10,627
|
|
Telephone
|
|
|
0
|
|
|
|
31,866
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
697,929
|
|
|
$
|
765,399
|
|
The following table is a summary of fixed assets:
|
|
31-Mar-10
|
|
|
30-Jun-09
|
|
|
|
|
|
|
|
|
Vehicles
|
|
$
|
557,145
|
|
|
$
|
546,650
|
|
Equipment
|
|
|
307,518
|
|
|
|
277,380
|
|
Office equipment
|
|
|
6,532
|
|
|
|
6,532
|
|
Furniture & fixtures
|
|
|
15,036
|
|
|
|
15,035
|
|
Accumulated depreciation
|
|
|
(364,373
|
)
|
|
|
(200,267
|
)
|
|
|
|
|
|
|
|
|
|
Fixed assets- net
|
|
$
|
521,858
|
|
|
$
|
645,330
|
|
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:
2010
|
|
$
|
190,626
|
|
2011
|
|
|
110,609
|
|
2012
|
|
|
88,753
|
|
2013
|
|
|
75,597
|
|
2014
|
|
|
38,879
|
|
2015
|
|
|
2,942
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
507,407
|
|
|
|
|
|
|
Less amounts representing interest
|
|
|
(70,327
|
)
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
$
|
437,080
|
|
8. Litigation
The Company is a defendant in various lawsuits initiated against it as a result of the ordinary course of its business. At the date of this report, management cannot predict the likelihood of an unfavorable of these lawsuits nor can management estimate a probable range of loss, if any, upon the resolution of these matters. However, in the opinion of management, the eventual disposition of these lawsuits will not have a material effect on the Company’s financial position.
9. Related Party Transactions
During nine months ended March 31, 2010 and March 31, 2009, sales revenues to related parties were $103,683 and $160,991, respectively. Receivables from related parties were $2,783 and $38,614, respectively.
The Company has entered into equipment rental agreements with the secretary and 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.
During fiscal year 2009 and the first nine months of 2010, the Company issued notes payable to a shareholder and received proceeds of $303,000. The loans are secured by the receivables of the Company and mature from May 2010 to July 2010. Although there was no stated interest on these notes, the Company imputed an interest rate of 10.67% and recorded interest expense in the statement of operations.
10. Debt and Credit Line
In October 2008, the Company issued a note payable to a creditor and received proceeds of $200,000. The loan is secured by the receivables of the Company and matures in December 2009 at an interest rate of 10%. This loan has been extended on a month to month basis.
In January 2009, the Company issued a note payable to a creditor and received proceeds of $100,000. The loan is secured by the receivables of the Company and matures in February 2010 at an interest rate of 12%. This loan has been extended on a month to month basis.
The Company has a $10,000 line of credit from a bank at a fluctuating interest rate based on the prime interest rate. The balance on the credit line at March 31, 2010 is $1,700.
11. Going Concern
The accompanying financial statements have been presented in accordance with generally accepted accounting principals, 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.
Management’s plans with regard to this matter are as follows:
Management plans to raise capital through an offering of its common stock. The Company will use the proceeds of this offering to purchase the leased equipment discussed in Note 9. Management estimates the purchase will save the Company approximately $475,000 in depreciation expense, leased trucks expense, and interest expense.
THIS PAGE LEFT INTENTIONALLY BLANK
MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
Summary of Operations
Overview
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.
The Company was incorporated in November 2006 and is currently focused on drywall and other waste removal from construction sites for disposal and recycling in the Northwest United States. The Company recycles the gypsum and other products from the drywall for sale to farmers in Washington State as fertilizer. However, the revenues received from these sales were not material in fiscal years 2008 and 2007 to warrant discussion.
Results of Operations
For the Nine Months Ended March 31, 2010 and March 31, 2009
Gross sales from drywall removal and other hauling were $1,347,507 and $2,747,542 for the nine months ended March 31, 2010 and March 31, 2009, respectively. Sales are billed to the client based upon the amount of debris removed, the type of debris, and transportation distances.
Gross margin on sales was about $50,599 and $625,777, respectively for the nine months period.
Administrative costs for the nine months ended March 31, 2010 and March 31, 2009 are as follows:
|
|
31-Mar-10
|
|
|
31-Mar-09
|
|
|
|
|
|
|
|
|
Salaries & benefits
|
|
$
|
145,069
|
|
|
$
|
226,300
|
|
Automobile expense
|
|
|
0
|
|
|
|
7,056
|
|
Bad debt expense
|
|
|
0
|
|
|
|
18,413
|
|
Bank fees
|
|
|
3,648
|
|
|
|
1,141
|
|
Depreciation- office equipment
|
|
|
1,059
|
|
|
|
326
|
|
Insurance
|
|
|
30,465
|
|
|
|
48,950
|
|
Licenses
|
|
|
3,989
|
|
|
|
6,892
|
|
Marketing
|
|
|
338,027
|
|
|
|
31,251
|
|
Meals
|
|
|
213
|
|
|
|
4,334
|
|
Administration
|
|
|
4,525
|
|
|
|
72,656
|
|
Professionals & consulting fees
|
|
|
62,877
|
|
|
|
182,138
|
|
Facilities expense
|
|
|
81,495
|
|
|
|
123,449
|
|
Taxes
|
|
|
26,562
|
|
|
|
10,627
|
|
Telephone
|
|
|
0
|
|
|
|
31,866
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
697,929
|
|
|
$
|
765,399
|
|
There were no salaries for the president and office help for nine months ending March 31, 2010. The company does not see any change in this for the next quarter.
Salaries were reduced from $226,300 for the nine months ending March 31, 2009 to $145,069 for the nine months ending March 31, 2010 as plan reduction to match market conditions.
Bad Debts decreased to zero in current nine month period from $18,413 for prior nine month period; as a result no additional write offs needed at this time.
Insurance costs decreased from $48,950 in prior nine month period to $30,465 for current nine month period due to reduction of revenue.
Marketing increased from $31,251 in prior nine month period to $338,027 for current nine month period as a result of issuing 750,000 shares of our common stock to a company to promote and market DRS Inc. These shares were valued at the date of issuance based on the current stock price at that time of $.45 per shares. The company hopes that the increased marketing expense will provide long term sales revenue to the company and allow it to expand into other states as they become aware of the benefits and expertise our company can provide in the area of drywall recycling.
Administration decreased from $72,656 in prior nine month period to $4,525 for current nine month period as a result of elimination of corporate office expenses and other reductions.
Professionals and Consulting decreased from $182,138 in prior nine month period to $62,877 for current nine month period as a result of reduced needs.
Facilities expense decreased from $123,449 in prior nine month period to $81,495 for current nine month period as a result of eliminating the Ridgefield facility. However, Facilities expense has an additional $19,398 for telephone expense for the current nine month period as a result of the company reclassifying telephone and communications into Facilities expenses.
Taxes increased from $10,627 in the prior nine month period to $26,562 for the current nine month period as a result of revenue collection increases over the prior period.
Telephone expense decreased from $31,866 from the prior nine month period to zero as a result of the company reclassifying telephone and communications into Facilities expense.
As a result, our net loss from operations for nine months ended March 31, 2010 and March 31, 2009 was $647,330 and $139,622. After deducting the interest costs on the capital leases for our trucks and adding interest income, we incurred a net loss of $735,579 in the first nine months of 2009, or about (.04) per share compared to $165,769 in first nine months of 2009, or about (.01) per share.
For the Three Months Ended March 31, 2010 and March 31, 2009
Gross sales from drywall removal and other hauling were $306,582 and $1,066,590 for the three months ended March 31, 2010 and March 31, 2009, respectively. Sales are billed to the client based upon the amount of debris removed, the type of debris, and transportation distances.
Gross margin on sales was about $(41,703) and $442,753, respectively for the quarters.
General administrative expenses were $383,453 and $448,695, respectively for the quarters.
As a result, our net loss from operations for quarters ended March 31, 2010 and March 31, 2009 was $425,156 and $5,942, respectively. After deducting the interest costs on the capital leases for our trucks and adding interest income, we incurred a net loss of $467,214 in the third quarter of 2010, or about .00 per share compared to $8,155 in third quarter of 2009, or about (.00) per share.
Liquidity & Capital Resources
Cash on hand at March 31, 2010 was $27,235 compared to $0 at March 31, 2009. We used $528,074 for operations in the first nine months of 2010 compared to $64,327 in the first nine months of 2009. We used $39,915 to purchase additional equipment March 31, 2010 compared to $102,745 at March 31, 2009. In first nine months of 2010, we raised $200,996 by issuing unsecured notes to shareholders as compared to $145,343 by issuing an unsecured note to individuals unrelated to the Company in the prior nine month period. We received $27,450 in subscriptions for our common stock for the prior nine month period compared to no subscriptions in the current nine month period. In the first nine months of fiscal 2010, we raised $482,750 by issuing common stock and $7,000 in options exercised. In nine months ended March 31, 2010 and March 31, 2009, we used $114,003 and $56,246 to pay down the capital leases on our vehicle equipment.
Total assets at March 31, 2010 and June 30, 2009 were $1,441,298 and $1,280,325, respectively. Our working capital at March 31, 2010 was $838,110 as compared to $660,474 at June 30, 2009.
Although sales volume has decreased significantly over the previous year due to the economic environment and the need to consolidate operations to conserve cash resources, the company believes that the local economy has bottomed out and home construction will start to expand. Several of our largest drywall installation and finish customers have increased their housing starts which will equate to revenue growth over the next several quarters. Management also feels that as its equipment liability is reduced, it will have the option to either reduce overhead by paying the liability off to lower monthly lease and depreciation expenses or to sell off some assets that are currently not being fully utilized. This reduction of equipment expense will have a tremendous effect on the goal of making the company profitable.
Accounts receivable aging was a considerable challenge last fiscal year, but the company believes that much of the uncollectable receivables have been written off and is experiencing much better payment results in the current nine month period.
Without additional funding, management believes that some operational reductions will still be required.
Forward Looking Statements
Management does not see the need for any additional capital expenditures in the next quarter. DRS Inc. will continue to promote the company through the public venue.
DRS Inc. is now trading on the OTCQB marketplace under the ticker symbol DRSX. The company will continue its efforts to raise capital by selling the shares that were registered under the approved S-1 registration filing.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not hold any assets or liabilities requiring disclosure under this item.
ITEM 4T. CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer has evaluated the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, 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. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company 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. The design of any system of controls also is based in part upon 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.
Based upon their controls evaluation, our Chief Executive Officer, and Chief Financial Officer, has concluded that our Disclosure Controls are effective at a reasonable assurance level.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings pending at this time.
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.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS
Please see Exhibit Index located behind the signature page.
Copies of the following documents are included as exhibits to this report pursuant to Item 601 Regulation S-K.
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.
DRS Inc.
Dated: May 12, 2010
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/s/ Daniel Mendes
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Daniel Mendes
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Principal Executive Officer
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/s/ George Guimont
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George Guimont
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Principal Financial Officer
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EXHIBIT INDEX
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Exhibit No.
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SEC Ref. No.
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Title of Document
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1
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31.1
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Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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2.
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31.2
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Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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3
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32.1
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Certification of the Principal Executive 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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4
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32.2
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Certification of the 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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* 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.
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