UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
OMB Number 3235-0419
Expires: March 31, 2000
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDING MAY 31, 1999
DENTAL RESOURCES, INC.
----------------------
(Name of Small Business Issuer in this charter)
MINNESOTA 41-1279182
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(State of incorporation) (IRS Employer Identification No.)
530 RIVER STREET SOUTH, DELANO, MN, 55328
-----------------------------------------
(Address of principal executive offices and Zip Code)
(Issuer's telephone number) (612) 972-3801
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Securities to be registered pursuant to section 12(b) of the Act.
Title of each class Name of each exchange on which registered
N/A
Securities to be registered pursuant to section 12(g) of the Act.
COMMON
------
(Title of Class)
This Registration Statement on Form 10-SB contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"). These statements appear in a
number of places in this Form 10-SB and include statements regarding the intent,
belief or current expectations of Dental Resources, Inc. (together with its
subsidiaries, the "Company") with respect to (i) the Company's financing plans,
(ii) trends affecting the Company's financial condition or results of
operations, (iii) the impact of competition, and (iv) the expansion of certain
operations. Investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that the actual results may differ materially from those in the forward-looking
statements as a result of various factors. The information contained in this
Form 10-SB, including, without limitation, the information under "Management's
Discussion and Analysis or Plan of Operations" and " Description of Business"
identifies important factors that could cause or contribute to such differences.
1
<PAGE>
TABLE OF CONTENTS
PART I.........................................................................1
Item 1. Description of Business..............................................1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................3
Item 3. Description of Property..............................................5
Item 4. Security Ownership of Certain Beneficial Owners and Management.......5
Item 5. Directors and Executive Officers, Promoters and Control Persons......6
Item 6. Executive Compensation...............................................8
Item 7. Certain Relationships and Related Transactions.......................9
Item 8. Description of Securities............................................9
PART II.......................................................................10
Item 1. Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters.............................................10
Item 2. Legal Proceedings...................................................11
Item 3. Changes in and Disagreements with Accountants.......................11
Item 4. Recent Sales of Unregistered Securities.............................11
Item 5. Indemnification of Directors and Officers...........................11
PART F/S....................................................................11
PART III......................................................................12
SIGNATURES....................................................................13
1
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL BUSINESS DEVELOPMENT
Dental Resources, Inc. (the "Company" or "Dental Resources") was incorporated as
a "C" corporation in Minnesota in 1976. It has not been the subject of any
bankruptcy, receivership or similar proceedings; it has not experienced any
material reclassification, merger or consolidation; nor has it purchased or sold
a significant amount of assets that were not in the ordinary course of its
business.
BUSINESS
Products and Services:
Dental Resources is principally engaged in manufacturing and marketing five
associated groups of dental related products to dentists, dental clinics,
hospitals and dental laboratories. Some of the products in each group are
assembled from purchased components. Some are manufactured for Dental Resources
to its specifications using tooling or formulas supplied by Dental Resources.
Other products are simply purchased by it for resale. The Company's product line
consists of:
THE PRO-FORM LAMINATE SYSTEM
Products within the Pro-form laminate system include the vacuum forming unit
manufactured by the Company, thermoplastic sheets that are used for the
construction of removable dental prosthesis, and a variety of sundry items
useful for facilitating fabrication of the appliances, such as cutters,
adhesives, and lubricants. The Pro-form laminate system is a patented process
acquired by the Company in February of 1981, and includes the rights to the
Pro-form trademark and all US registered patents. Sales of products within this
group currently comprise approximately 43% of the Company's sales.
HYGIENIST AND HOME CARE PRODUCTS
Products within the Hygienist and Home Care Products include certain products
and chemicals used in dental offices and additional products and chemicals used
in the home, which are all functionally related in that they are used by the
dental professional for the prevention or alleviation of problems such as caries
and gingivitis. Products in this group include fluoride gels and trays, soaps,
disposable prophy angles and ancillary products. Sales of products within this
group presently comprise approximately 21% of the Company's sales.
PACKAGING PRODUCTS
Products within the packaging group include injection molded plastic boxes and
packaging foams for use in the dental and medical industry. The Company
customizes its various products to the needs of the end user by stamping or
printing the dentist or laboratory name, logo, etc. onto the face of the
packaging. Sales of the products within this group currently comprise
approximately 28% of the Company's sales.
PROCURE LIGHT CURED COMPOSITES
Products within the Procure product group include a high intensity ultraviolet
halogen-light oven manufactured by the Company and light cured composites which
are used for the fabrication of various dental prosthesis. Sales of products
within this group currently comprise only about 2% of the Company's sales.
PRO-FLEX DENTURE SYSTEM
Products within the Pro-flex denture system include a line of various materials
used to fabricate flexible dentures. Although this is a newly developed line,
the Company is confident that there is a great deal of market potential for a
product that solves the problem of ill-fitting dentures. Sales of products
within this product group currently comprise about 5% of the Company's sales.
F-1
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Distribution Methods of Products or Services:
The Company's products are marketed through independent sales organizations and
established dealers throughout the world.
Status of Any Publicly Announced New Products or Services:
The Company introduced its Pro-flex product line of flexible dentures in 1999.
The Pro-flex product line is meeting expectations. There have not been any other
new products or services announced publicly in the past three years.
Competitive Business Conditions and The Company's Competitive Position in the
Industry and Methods of Competition:
Competition with all of the Company's products occurs primarily on the basis of
price and product quality. There are numerous competitors providing the same or
similar products as the Company, none of whom dominate the market. However, many
of these competitors have significantly greater sales and capital resources than
that of the Company. Management believes that its technical competence, pricing
structure, and the packaging of its products into interrelated systems allows
the Company to compete effectively in the market. Recent certification to
ISO-9002, EN-46002, and ISO-13485 standards has allowed the Company to remain
competitive in a global environment with approximately 30% of the Company's
sales coming from outside the United States.
Sources and Availability of Raw Materials and Names of Principal Suppliers:
Raw materials are purchased from numerous sources. The Company does not rely on
any one source for any of its major products.
Dependence on One or Few Major Customers:
Dental Resources has one customer that accounted for 21% of its gross revenues
in the fiscal year ending May 31, 1999. The balance of the revenues were
received from a variety of customers, none of whom represented more than 5% of
its revenues for the same period.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or
Labor Contracts:
Dental Resources has royalty contracts covering various products based on unit
sales to the following companies or individuals; ASD Corp., A&M Dental Lab, Mr.
Charles Coykendahl, Mr. Jerry Webb, Scott All Sports, and Mr. Tom Mayclin. Total
royalties paid during the fiscal year ended May 31, 1999 aggregated $12,822.46.
Need for any Government Approval of Principal Products or Services:
Pro-flex products marketed by Dental Resources are registered with the Federal
Drug Administration. Iodophor sanitizers marketed by the Company have been
registered with the Environmental Protection Agency.
Effect of Existing or Probable Governmental Regulations on the Business:
The Company is not aware of any existing or probable government regulations that
have or will have any material effects on the Company's business.
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<PAGE>
Research and Development:
It is estimated that during the past two fiscal years the Company has spent
approximately $70,000 and $50,000, respectively, on internal and external costs
relating to research and development on new and existing product lines.
Environmental Compliance:
There have been no significant costs borne by the Company in an effort to comply
with environmental laws.
Employees:
Dental Resources employs 31 full-time and 4 part-time employees, including
management. The Company also engages the services of an additional 15 workers
that are subcontracted through Functional Industries, a business that employs
individuals with physical or mental handicaps.
REPORTS TO SECURITY HOLDERS.
Prior to the filing of this Form 10-SB the Company has not filed any other
reports with the Securities and Exchange Commission. The Company has only been
required to file annual reports to the State of Minnesota's Securities and Real
Estate Division pursuant to Minn. Stat. Section 80A.12, Subdivision 10. However,
the Company historically sends an annual report along with audited financial
statements to security holders annually. Once the Company becomes a reporting
company, management anticipates that Forms 3, 4, 5, 10-KSB, 10-QSB, 8-K and
Schedules 13D along with appropriate proxy materials will be filed as they come
due. Likewise, to the extent that the Company is required to deliver annual
reports to security holders through its status as a reporting Company, or as may
be required by the rules or regulations of any exchange upon which the shares of
the Company are traded, the Company will deliver annual reports to all
shareholders. If the Company issues additional shares, the Company may file
additional registration statements for those shares.
This report and any other information that the Company has filed with the
Securities Exchange Commission may be read or copied at the SEC's Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20529. The public may
obtain information on the operation of the Public Reference Room by calling
1-800-SEC-0330. The Commission maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the Commission. The Internet address of the
Commission's site is (http://www.sec.gov).
The Company also maintains an Internet website at www.dentalresourcesinc.com.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations For the Fiscal Years Ended May 31, 1999 and 1998.
For the year ended May 31, 1999 the Company received revenues from operations of
approximately $4,500, 000, an increase of approximately 5% compared to
$4,300,000 for the same period in 1998. This result is attributable to increases
in sales in each of the Company's product lines. On May 31, 1999 the Company's
total assets were $1.8 million, compared to $1.6 million at May 31, 1998. The
increase was due primarily to increases in accounts receivable and inventories
resulting from increased sales. Total liabilities increased from $598,000 at May
31, 1998 to $687,000 at May 31,1999. The increase in liabilities was mainly in
accounts payable as the Company continues to expand its inventories to keep pace
with increasing sales. As of May 31, 1999, stockholder equity increased by
$91,000 to $1,128,000 from $1,037,000 as of May 31,1998. The sale of
unregistered securities pursuant to exercising of options to outside directors
resulted in an increase of $1,000. The balance of the increase was a result of
operations
F-3
<PAGE>
of the Company. During the twelve month period ending May 31, 1999 operations of
the Company produced a positive cash flow of $184,000. The prior year produced
positive cash flows of $109,000 in comparison. The increase in cash flows was
mainly attributable to increases in credit lines with vendors (accounts payable)
as purchases of inventory continue to increase.
The Company has typically relied on cash flows from operations to finance its
working capital needs. The Company has a working capital loan with Oakley
National Bank of Buffalo, Minnesota in the amount of $350,000 secured by the
Company's inventories and accounts receivable to fund temporary or seasonal
variations in cash flows. At May 31, 1999 the Company had used $245,000 of the
credit line leaving a balance of $105,000 available. The Company also from time
to time will borrow capital on a term note to finance purchases of specific
capital equipment as necessary. At May 31, 1999 the balance due on these leases
was $2,100. Management is confident that these combined sources of capital will
be sufficient to finance the current operations of the Company. The Company's
future capital requirements will depend on many factors, including growth of the
Company's customer base, economic conditions and other factors including the
results of future operations.
The Company intends to continue developing its existing product lines and
expanding it's manufacturing capacity. It is estimated that the Company may need
to borrow up to $200,000 during the next twelve months to finance the
acquisition of capital equipment necessary to support such expansion. In
particular, the Company intends to continue the development of its Pro-flex
flexible denture line and Wing-it articulator system. However, the Company has
not made any commitments for any capital expenditures at this time. At this time
there are no plans to sell any significant capital equipment. The Company is
evaluating the possibility of expanding its plastic extrusion and die cutting
operations. By expanding operations, the Company expects that the number of full
time employees it employs will increase approximately ten percent (10%).
There are no known trends , events, or uncertainties known to management at this
time that have had or are reasonably expected to have a material impact on the
net sales or revenues or income from continuing operations. There are no
significant elements of income or loss that did not arise from the Company's
continuing operations. There were not any material changes from the prior period
of any line items within the Company's financial statements that require
additional explanation. Historically, the first quarter of operations has always
been the strongest for the Company due to increased sales of it's Pro-form
mouthguard line to athletes returning to school in the fall. As the Company
continues to expand the other product lines that it markets, the effect of this
seasonal business is expected to continue to decline as a material aspect of its
operations.
Results of Operations for the Seven Months Ended December 31, 1999 and 1998.
For the seven months ended December 31, 1999 the Company received revenues from
operations of approximately $3,100,000, an increase of approximately 17%
compared to $2,600,000 for the same period in 1998. This result is attributable
to increases in sales in each of the Company's major product lines and the
introduction of a new line of flexible denture materials (Pro-Flex). On December
31, 1999 the Company's total assets were $1,935,748, compared to $1,765,769 at
December 31, 1998. The increase was due primarily to the results of the prior
years operations being invested in expanding inventories and accounts receivable
along with purchases of capital equipment and tooling of approximately $65,000.
Total liabilities increased from $630,458 at December 31, 1998 to $651,670 at
December 31,1999. The increase in liabilities was mainly attributable to
increased use of the credit line to finance inventories and accounts receivable
needed to keep pace with increasing sales. As of December 31, 1999, stockholder
equity increased by $148,412 to $1,284,078 from $1,135,311 as of December
31,1998 as result of operations. Profits from operations was the main reason for
the increase in equity. In addition to operations, sales of unregistered
securities pursuant to options issued to outside directors resulted in an
increase of approximately $175.00 in equity. During the seven month period
ending December 31, 1999 operations of the Company produced a positive cash flow
of $90,262. The prior year produced positive
F-4
<PAGE>
cash flows of $161,374 in comparison. Increases in accounts receivable and
inventories resulting from expanding sales led to decreased cash flows.
ITEM 3. DESCRIPTION OF PROPERTY.
Location and Condition of the Principal Plants of Operation.
The Company does not own any real property. The Company leases a 13,000 square
foot facility at 530 River Street S. in Delano Minnesota. This facility holds
all administrative and a portion of the warehousing and manufacturing operations
of the Company. The lease term extends through October 2000 at an average rental
rate per square foot of $5.08. The Company also leases a 10,000 square foot
facility at 410 congress Street in Maple Lake Minnesota. This facility houses
all remaining manufacturing operations. The lease term for this facility extends
through September 2003 at an average lease rate per square foot of $5.50. Both
facilities are new (less than 10 years) and are in excellent condition.
Management believes that the lease rate per square foot and other terms and
conditions are competitive. Leases for both facilities provide for an option to
renew leases for an additional five years beyond the expiration of the current
lease term. Lease rates will increase 10% if renewed for the additional five
year term.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security ownership of certain beneficial owners (5% or greater).
The following information sets forth certain information as of December 31,
1999, about each person or entity who is known to the Company to be beneficial
owners of more than 5% of the Company's Common Stock:
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent of
Title of Class of Beneficial Owner of Beneficial Owner Class
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Douglas B. Murphy President, CEO 177,938 shares (1) 9.4%
3730 Lee Road Director
Minnetrista, MN 55364
Common William Murphy VP Sales 186,695 shares (1) 9.8%
18440 25TH Ave. N
Plymouth, MN 55447
Common Bryan Nichols VP Operations, CFO 120,000 shares (1) 6.3%
2130 54TH St. NW Director
Buffalo, MN 55313
</TABLE>
(1) Doug Murphy, William Murphy and Bryan Nichols each has the right to
exercise options to purchase 40,000 shares of common stock within the next
60 days.
(b) Security ownership of management.
The following information sets forth certain information as of December 31,
1999, about each person in a management position or director who is beneficial
owners of the Company's Common Stock:
F-5
<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent of
Title of Class of Beneficial Owner of Beneficial Owner Class
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Douglas B. Murphy President, CEO 177,938 shares (1) 9.4%
3730 Lee Road Director
Minnetrista, MN 55364
Common William Murphy VP Sales 186,695 shares (1) 9.8%
18440 25TH Ave. N
Plymouth, MN 55447
Common Bryan Nichols VP Operations, 120,000 shares (1) 6.3%
2130 54TH St. NW Director
Buffalo, MN 55313
Common Earl Johnson Director 41,542 shares (2) 2.2%
325 Highland Drive
Hibbing, MN 55746
Common Russ Felten Director 12,562 shares (3) 0.7%
7354 Howard Lane
Eden Prairie, MN 55346
Common Officers and Directors as a group
(5 persons) 538,737 shares 28.3%
</TABLE>
(1) Doug Murphy, William Murphy and Bryan Nichols each has the right to
exercise options to purchase 40,000 shares of common stock within the next
60 days.
(2) Earl Johnson has options to purchase 5,617 shares of common stock within
the next 60 days.
(3) Russ Felten has options to purchase 5,617 shares of common stock within the
next 60 days.
(c) Changes in control.
There are no arrangements which may result in a change in control of the
Company.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Set forth below are the names, ages and positions of the directors and
executive officers of the Company:
NAME AGE POSITION WITH COMPANY
- ---- --- ---------------------
Douglas Murphy 50 President, Chief Executive Officer and Director
Bryan Nichols 39 Vice President, Chief Financial Officer and Director
William Murphy 48 Vice President of Sales
Dr. Earl Johnson 64 Director
Russel Felten 50 Director
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<PAGE>
Douglas Murphy has been President and CEO of the Company since January
of 1986. He has served as director and as an officer of the Company since 1981.
Mr. Murphy holds a Ph.D. degree in Biological Sciences. In his present capacity
within the Company, Mr. Murphy is principally concerned with marketing,
distribution and introduction of new products.
Bryan Nichols has been the Vice President of Operations and CFO of the
Company since January of 1986. He has served as secretary to the board since
1986 and as a director since 1995. Mr. Nichols holds a Bachelors degree in
Business Administration along with a (mini) MBA certificate from the University
of St. Thomas. Mr. Nichols has also completed certification training in ISO-9000
and FDA QSR Regulatory training. In his present capacity with the Company Mr.
Nichols is primarily concerned with operations, production and financing.
William Murphy was one of the original founders of the Company in 1976.
He is the brother of Douglas Murphy. Mr. Murphy has held positions as both
director and President of the Company. He resigned his position with the Company
in 1986 to direct another public company, Medical Packaging Corp. But returned
to the Company in 1988 where he served in various management positions since
that time. Mr. Murphy holds a Bachelors degree in Business from St. Cloud State.
Mr. Murphy is principally concerned with products within the Laboratory division
of the Company including research and development and introduction of products
within that division.
Dr. Earl Johnson was elected to the board of directors in January 1988.
He has served in that capacity with the Company since that time. Dr. Johnson
retired after running a successful practice in Hibbing, MN for 35 years. Dr.
Johnson is a graduate of the University of Minnesota School of Dentistry. In
addition to serving as a board member, Dr. Johnson has helps with research and
development of various products that the Company has introduced.
Russel Felten was elected to the board of directors in 1994 and has
served in that capacity since that time. Mr. Felten is President of Agricultural
Financial Services, a Company focused on leasing to the farming industry. At the
same time Mr. Felten continues to manage assets for individuals as he has done
for the past twelve years. From 1973 to 1988 Mr. Felten was employed by
Waycrosse, Inc. where he performed duties ranging form tax and estate planning
work to the management of all types of investments. Mr. Felten is also a
director of Minn. American Inc., OTCFMB.MN.A:C, as well as a director of various
privately held companies. Mr. Felten holds a BS in Business Administration from
Valparaiso University and received the Certified Financial Planner designation
in 1988.
The Company's directors are elected at the annual meeting of stockholders and
hold office until their successors are elected and qualified. The Company's
officers are appointed by the Board of Directors and serve at the pleasure of
the Board and subject to employment agreements, if any, approved and ratified by
the Board.
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ITEM 6. EXECUTIVE COMPENSATION.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
Name and Securities Underlying All Other
Principal Position Fiscal Year Salary Bonus Options(1) Compensation(2)
- ------------------ ----------- ------ ----- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Douglas Murphy 1997 $84,000 $23,052 0 $9,780
Chief Executive 1998 $88,200 $ 7,825 0 $9,780
Officer 1999 $90,846 $ 5,700 0 $9,780
</TABLE>
(1) Mr. Murphy received incentive stock options to purchase 40,000 shares
of common stock granted September 1, 1999, at $.44 per share, the final
bid price as of the option date.
(2) Includes automobile allowance and entertainment and expense allowance,
health insurance premiums and life insurance premiums not available to
employees generally.
There were no other executives that earned in excess of $100,000 during the most
recent fiscal year.
STOCK OPTIONS
The following table sets forth all options that have been granted to officers or
directors as of the end of the Company's last fiscal year.
<TABLE>
<CAPTION>
- ------------------- ------------------- -------------- -------------- ----------- ---------------
DATE DATE NUMBER OF OPTION
OPTIONEE CAPACITY GRANTED EXPIRES SHARES PRICE
- ------------------- ------------------- -------------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Russel Felten Director 03/16/95 03/15/00 1,111 0.16
- ------------------- ------------------- -------------- -------------- ----------- ---------------
Earl Johnson Director 03/16/95 03/15/00 1,111 0.16
- ------------------- ------------------- -------------- -------------- ----------- ---------------
Dennis Breen Former Director 03/16/95 03/15/00 1,111 0.16
- ------------------- ------------------- -------------- -------------- ----------- ---------------
Russel Felten Director 07/06/95 07/05/00 800 0.25
- ------------------- ------------------- -------------- -------------- ----------- ---------------
Earl Johnson Director 07/06/95 07/05/00 800 0.25
- ------------------- ------------------- -------------- -------------- ----------- ---------------
Dennis Breen Former Director 07/06/95 07/05/00 800 0.25
- ------------------- ------------------- -------------- -------------- ----------- ---------------
Russel Felten Director 12/07/95 12/06/00 1,053 0.19
- ------------------- ------------------- -------------- -------------- ----------- ---------------
Earl Johnson Director 12/07/95 12/06/00 1,053 0.19
- ------------------- ------------------- -------------- -------------- ----------- ---------------
John Ward Former Director 12/07/95 12/06/00 1,053 0.19
- ------------------- ------------------- -------------- -------------- ----------- ---------------
Russel Felten Director 04/04/96 04/03/01 1,053 0.19
- ------------------- ------------------- -------------- -------------- ----------- ---------------
Earl Johnson Director 04/04/96 04/03/01 1,053 0.19
- ------------------- ------------------- -------------- -------------- ----------- ---------------
Russel Felten Director 04/24/96 04/23/01 800 0.25
- ------------------- ------------------- -------------- -------------- ----------- ---------------
Earl Johnson Director 04/24/96 04/23/01 800 0.25
- ------------------- ------------------- -------------- -------------- ----------- ---------------
John Ward Former Director 04/24/96 04/23/01 800 0.25
- ------------------- ------------------- -------------- -------------- ----------- ---------------
Russel Felten Director 05/08/96 05/07/01 800 0.25
- ------------------- ------------------- -------------- -------------- ----------- ---------------
Earl Johnson Director 05/08/96 05/07/01 800 0.25
- ------------------- ------------------- -------------- -------------- ----------- ---------------
- ------------------- ------------------- -------------- -------------- ----------- ---------------
TOTAL
OPTIONS 14,998
- ------------------- ------------------- -------------- -------------- ----------- ---------------
</TABLE>
On December 10, 1998, the shareholders approved the Company's 1998 Stock Option
Plan adopted by the board of directors.
No options were granted to executive officers during fiscal year 1999, however
the following table lists options that were granted to officers or directors
effective September 1, 1999.
F-8
<PAGE>
<TABLE>
<CAPTION>
- ------------------- -------------------- --------------- -------------- ----------- --------------
DATE DATE NUMBER OF OPTION
OPTIONEE CAPACITY GRANTED EXPIRES SHARES PRICE
- ------------------- -------------------- --------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Doug Murphy President, Director 09/01/99 09/01/04 40,000 0.44
- ------------------- -------------------- --------------- -------------- ----------- --------------
William Murphy VP Sales 09/01/99 09/01/04 40,000 0.44
- ------------------- -------------------- --------------- -------------- ----------- --------------
Bryan Nichols VP Operations,
CFO, Director 09/01/99 09/01/04 40,000 0.44
- ------------------- -------------------- --------------- -------------- ----------- --------------
Production Mgr.
Jennifer Carpentier (Delano) 09/01/99 09/01/04 13,000 0.44
- ---------------------------------------------------------------------------------- ---------------
Customer Serv.
Patti Cordes Supervisor 09/01/99 09/01/04 7,500 0.44
- ------------------- -------------------- --------------- -------------- ----------- --------------
Corey Cummings Purchasing Manager 09/01/99 09/01/04 13,000 0.44
- ------------------- -------------------- --------------- -------------- ----------- --------------
Halo Falde Shipping Manager 09/01/99 09/01/04 6,800 0.44
- ------------------- -------------------- --------------- -------------- ----------- --------------
Production Mgr.
Timothy Smith (Maple Lake) 09/01/99 09/01/04 13,000 0.44
- ------------------- -------------------- --------------- -------------- ----------- --------------
Debbie Hilde Customer Serv. 09/01/99 09/01/04 6,800 0.44
- ------------------- -------------------- --------------- -------------- ----------- --------------
Russel Felten Director 09/01/99 09/01/04 5,000 0.44
- ------------------- -------------------- --------------- -------------- ----------- --------------
Earl Johnson Director 09/01/99 09/01/04 5,000 0.44
- ------------------- -------------------- --------------- -------------- ----------- --------------
- ------------------- -------------------- --------------- -------------- ----------- --------------
TOTAL
OPTIONS 190,100
- ------------------- -------------------- --------------- -------------- ----------- --------------
</TABLE>
DIRECTOR COMPENSATION
Although the Company does not have any formal plan or policy relating to
compensation for directors, historically, the outside directors (members of the
Board of Directors who are not also employees) have been granted options at
various levels and at various exercise prices as compensation for service.
Beginning in 1996 outside board members have been paid $500 cash per meeting
attended.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the past two years the Company has not entered into any transactions with
a value in excess of $60,000, with an officer or director, a beneficial owner of
5% or more of the Company's common stock.
ITEM 8. DESCRIPTION OF SECURITIES.
The Company's Restated Articles of Incorporation authorize the issuance of
5,000,000 shares of common stock, $.01 par value per share. There is no
preferred stock authorized. Holders of shares of common stock are entitled to
one vote for each share on all matters to be voted on by the stockholders.
Holders of shares of common stock are entitled to share ratably in dividends, if
any, as may be declared from time to time by the Board of Directors in its
discretion from funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, the holders of shares are entitled to
share pro rata all assets remaining after payment in full of all liabilities.
Holders of common stock have no preemptive or other subscription rights, and
there are no conversion rights or redemption or sinking fund provisions with
respect to such shares. It is the policy of the Company not to pay out
dividends, but rather to reinvest earnings toward capital growth. There are no
other forms of securities offered by the Company.
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<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
Market Information:
The Company's common stock currently trades in the "pink sheets" under the
trading symbol: DRI. The Company's common stock was listed for trading on the
over-the-counter bulletin board (OTC:BB) on August 17, 1998, but became
ineligible to continue trading on November 3, 1999 because its Form 10-SB was
not effective as of such date. The Company intends to apply for listing on the
OTC:BB once it commences reporting under the Securities Exchange Act of 1934.
The following table sets forth the highest and lowest bid prices for the common
stock for each calendar quarter and subsequent interim period since the common
stock commenced actual trading, as reported by the National Quotation Bureau,
and represent interdealer quotations, without retail markup, markdown or
commission and may not be reflective of actual transactions:
Fiscal 1998 High Bid Low Bid
First Quarter 1 1/2 3/4
Second Quarter 1 1/8 7/8
Third Quarter 1 1/8 7/8
Fourth Quarter 7/8 3/8
Fiscal 1999
First Quarter 7/8 3/8
Second Quarter 1 1/8 3/4
Third Quarter 5/8 1/2
September - December * 3/8 3/16
--------------------------
* Since November 3, 1999, the Company's common stock no longer trades
on the OTC:BB.
There can be no assurance that an active public market for the common stock will
continue or be sustained. In addition, the shares of common stock are subject to
various governmental or regulatory body rules which affect the liquidity of the
shares.
Holders:
There were approximately 400 holders of record of the Company's common stock as
of December 31, 1999.
F-10
<PAGE>
Dividends:
The Company has never paid cash dividends on its common stock and does not
intend to do so in the foreseeable future. The Company currently intends to
retain its earnings for the operation and expansion of its business. The
Company's continued need to retain earnings for operations and expansion are
likely to limit the Company's ability to pay dividends in the future.
ITEM 2. LEGAL PROCEEDINGS.
The Company is not a party to in any existing or pending legal proceedings nor
has its property been the subject of any such proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The Company has not changed nor has it had any disagreements with its
accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
1997: No sales of unregistered securities occurred during fiscal 1997.
1998: Sales of 33,334 shares of unregistered securities upon exercise of options
to a former employee occurred during the 1998 fiscal year. Average exercise
price per share received was $0.15 per share.
1999: Sales of 3,084 shares of unregistered securities upon exercise of options
to outside directors occurred during the 1999 fiscal year. Average exercise
price per share received was $0.32 per share.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Restated Articles of Incorporation, its Restated Bylaws and the
provisions of the Minnesota Business Corporation Act, which govern the actions
of the Company, provide that present and former officers and directors of the
Company shall be indemnified against certain liabilities and expenses which any
of them may incur as a result of being, or having been, an officer of the
Company. Indemnification is contingent upon certain conditions being met,
including, that the person: has not been previously indemnified by another party
for the same matter; has acted in good faith; has received no improper personal
benefit; and in the case of a criminal proceeding, has no reason to believe that
the conduct complained of was unlawful and reasonably believed that the conduct
complained of was in the best interests of the Company, or in certain
circumstances, reasonably believed that the conduct complained of was not
opposed to the best interests of the Company.
In addition, the Company's Restated Articles of Incorporation provide that a
director of the Company shall not be liable for monetary damages for a breach of
such director's fiduciary duty, except for a breach of the duty of loyalty, acts
not in good faith or in knowing violation of law, violations of state securities
laws, or for actions from which the director derived an improper personal
benefit.
Insofar as the indemnification of liabilities arising under the 1933 Act, as
amended, may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions of its Restated Articles of Incorporation,
Restated Bylaws and the provisions of the Minnesota Business Corporation Act, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act, as amended, and is, therefore, unenforceable.
PART F/S
The financial statement information is set forth immediately following the
signature page.
F-11
<PAGE>
PART III
The following exhibits are filed with this Form 10-SB:
Assigned Number Description
- --------------- -----------
Exhibit 3.1.1 Restated Articles of Incorporation*
Exhibit 3.1.2 Restated Bylaws*
Exhibit 27 Financial Data Schedule*
- ----------------------
* Previously filed as part of Issuer's Registration Statement on
Form 10-SB filed March 7, 2000
F-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 1, 2000.
DENTAL RESOURCES, INC.
By: /s/ Douglas B. Murphy
--------------------------------------
Douglas B. Murphy
F-13
<PAGE>
DENTAL RESOURCES, INC.
STATEMENTS OF INCOME
FOR THE 7 MONTHS ENDING DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------------------------
PERCENT PERCENT
OF OF
AMOUNT SALES AMOUNT SALES
-----------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $ 3,063,092 100.00% $ 2,615,880 100.00%
COST OF SALES 2,181,535 71.22% 1,865,132 71.30%
-----------------------------------------------------------
GROSS PROFIT 881,557 28.78% 750,748 28.70%
EXPENSES
Marketing 359,756 11.74% 341,795 13.07%
General & Administrative 358,081 11.69% 284,196 10.86%
-----------------------------------------------------------
TOTAL EXPENSES 717,837 23.44% 625,991 23.93%
-----------------------------------------------------------
INCOME FROM OPERATIONS 163,720 5.34% 124,757 4.77%
OTHER INCOME (EXPENSE)
Finance charge income 2,937 0.10% 11,804 0.45%
Gain on sale of assets -- 0.00% -- 0.00%
Interest expense 4,647 0.15% 15,284 0.58%
-----------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) 7,584 0.25% 27,088 1.04%
-----------------------------------------------------------
NET INCOME $ 156,136 5.10% $ 97,669 3.73%
===========================================================
</TABLE>
<PAGE>
DENTAL RESOURCES, INC.
BALANCE SHEETS
FOR THE 7 MONTHS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 15,959 $ 25,318
Accounts receivable-trade, less allowance for
doubtful accounts of $7,500 in 1999 and
$2,500 in 1998 709,274 681,275
Accounts receivable-other 8,527 7,939
Inventories 637,638 545,720
Prepaid expenses 48,062 39,411
Deposits 6,658 18,457
----------------------------
TOTAL CURRENT ASSETS 1,426,118 1,318,119
PROPERTY AND EQUIPMENT
Property and equipment 1,226,881 1,080,350
Less: accumulated depreciation 730,798 648,367
----------------------------
PROPERTY AND EQUIPMENT - NET 496,083 431,983
OTHER ASSETS
Patents and trade marks, less accumulated
amortization of $2,333 in 1999 and $1,833 in 1998 2,667 3,167
Deferred income taxes 10,880 12,500
----------------------------
TOTAL OTHER ASSETS 13,547 15,667
----------------------------
TOTAL ASSETS $ 1,935,748 $ 1,765,769
============================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1999 1998
-----------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable-bank $ 256,989 $ 213,056
Current portion of long-term debt -- 3,500
Accounts payable 373,246 404,508
Income taxes payable 1,148 --
Accrued liabilities 20,287 9,393
-----------------------------
TOTAL CURRENT LIABILITIES 651,670 630,458
LONG-TERM LIABILITIES
Long-term debt, less current portion shown above -- --
-----------------------------
TOTAL LIABILITIES 651,670 630,458
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 20,000,000 shares
authorized; 1,903,622 and 1,902,511 shares issued
and outstanding, respectively 19,036 19,025
Additional paid-in capital 1,588,116 1,587,950
Retained deficit (323,074) (471,663)
-----------------------------
TOTAL STOCKHOLDERS' EQUITY 1,284,078 1,135,311
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,935,748 $ 1,765,769
=============================
</TABLE>
<PAGE>
DENTAL RESOURCES, INC.
STATEMENTS OF CASH FLOWS
FOR THE 7 MONTHS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 156,136 97,669
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 61,361 54,414
Amortization 292 292
Bad debts 6,529 400
Deferred income taxes -- --
Gain on sale of assets -- --
Changes in assets and liabilities:
(increase) decrease in receivables 49,115 (42,472)
(increase) decrease in inventories (137,139) (61,622)
(increase) decrease in prepaid expenses (22,644) (19,232)
(increase) decrease in deposits 24,978 (15,004)
increase (decrease) in income taxes payable (542) (1,000)
increase (decrease) in accounts payable (8,119) 150,085
increase (decrease) in accrued liabilities (37,515) (1,787)
-----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 92,452 161,743
CASH FLOWS PROVIDED BY (USED IN) INVESTING
ACTIVITIES
Purchase of property and equipment (134,293) (36,064)
Proceeds from sale of property and equipment -- --
-----------------------
NET CASH (USED IN) INVESTING ACTIVITIES (134,293) (36,064)
CASH FLOWS PROVIDED BY (USED IN) FINANCING
ACTIVITIES
Payments on long-term debt (1,000) (33,768)
Proceeds from long-term debt -- --
Net payments on note-payable-bank 12,000 (81,107)
Proceeds from issuance of common stock 177 1,000
-----------------------
NET CASH (USED IN) FINANCING ACTIVITIES 11,177 (113,875)
-----------------------
NET INCREASE (DECREASE) IN CASH (30,664) 11,804
CASH-BEGINNING OF PERIOD 46,623 13,512
-----------------------
CASH-END OF PERIOD 15,959 25,316
</TABLE>
<PAGE>
DENTAL RESOURCES, INC.
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT
MAY 31, 1999 AND 1998
<PAGE>
DENTAL RESOURCES, INC.
MAY 31, 1999 AND 1998
INDEX
Page
----
INDEPENDENT AUDITOR'S REPORT 1
AUDITED FINANCIAL STATEMENTS
Balance Sheets 3
Statements of Income 4
Statements of Cash Flows 5
Statements of Stockholders' Equity 6
Notes to Financial Statements 7 - 14
<PAGE>
-1-
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Dental Resources, Inc.
Delano, Minnesota
We have audited the balance sheets of Dental Resources, Inc. (a Minnesota
corporation) as of May 31, 1999 and 1998 and the related statements of income,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dental Resources, Inc. as of
May 31, 1999 and 1998 and the results of its operations and cash flows for the
years then ended, in conformity with generally accepted accounting principles.
/s/ Froehling, Anderson, Plowman & Wasworth, Ltd.
---------------------------------------------------
Froehling, Anderson, Plowman & Wasworth, Ltd.
Minnetonka, Minnesota
July 13, 1999
<PAGE>
-2-
DENTAL RESOURCES, INC.
AUDITED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
<PAGE>
-3-
DENTAL RESOURCES, INC.
BALANCE SHEETS
MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 46,623 $ 13,512
Accounts receivable - trade, less allowance for
doubtful accounts of $2,500 in 1999 and 1998 763,223 644,372
Accounts receivable - other 10,222 2,770
Inventories 500,499 484,098
Prepaid expenses 25,418 20,179
Deposits 31,636 3,453
-------------- --------------
TOTAL CURRENT ASSETS 1,377,621 1,168,384
PROPERTY AND EQUIPMENT
Property and equipment 1,092,588 1,044,286
Less: accumulated depreciation 669,438 593,953
-------------- --------------
PROPERTY AND EQUIPMENT - NET 423,150 450,333
OTHER ASSETS
Patents and trademarks, less accumulated
amortization of $2,041 in 1999 and $1,541 in 1998 2,959 3,459
Deferred income taxes 10,880 12,500
-------------- --------------
TOTAL OTHER ASSETS 13,839 15,959
-------------- --------------
TOTAL ASSETS $ 1,814,610 $ 1,634,676
============== ==============
<CAPTION>
1999 1998
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable - bank $ 244,989 $ 294,163
Current portion of long-term debt 1,000 36,268
Accounts payable 381,365 254,423
Income taxes payable 1,690 1,000
Accrued liabilities 57,802 11,180
-------------- --------------
TOTAL CURRENT LIABILITIES 686,846 597,034
LONG-TERM LIABILITIES
Long-term debt, less current portion shown above 1,000
-------------- --------------
TOTAL LIABILITIES 686,846 598,034
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 20,000,000 shares
authorized; 1,902,511 and 1,899,427 shares issued and
outstanding, respectively 19,025 18,994
Additional paid-in capital 1,587,950 1,586,981
Retained deficit (479,211) (569,333)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 1,127,764 1,036,642
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,814,610 $ 1,634,676
============== ==============
</TABLE>
See Accompanying Notes to Financial Statements and
Independent Auditor's Report.
<PAGE>
-4-
DENTAL RESOURCES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------------------------------- ---------------------------------
PERCENT PERCENT
OF OF
AMOUNT SALES AMOUNT SALES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
SALES $ 4,483,200 100.00% $ 4,268,847 100.00%
COST OF SALES 3,153,706 70.34 2,973,435 69.65
-------------- -------------- -------------- --------------
GROSS PROFIT 1,329,494 29.66 1,295,412 30.35
EXPENSES
Marketing 593,419 13.24 539,032 12.63
General and administrative 627,531 14.70 587,218 13.75
-------------- -------------- -------------- --------------
TOTAL EXPENSES 1,220,950 26.43 1,126,250 26.37
-------------- -------------- -------------- --------------
INCOME FROM OPERATIONS 108,544 2.42 169,162 3.96
OTHER INCOME (EXPENSE)
Finance charge income 11,019 0.25 1,068 0.03
Gain on sale of assets 708 0.02 10,000 0.23
Interest expense (24,559) (0.55) (36,084) (0.85)
-------------- -------------- -------------- --------------
TOTAL OTHER INCOME (EXPENSE) (12,832) (0.29) (25,016) (0.59)
-------------- -------------- -------------- --------------
INCOME BEFORE INCOME TAXES 95,712 2.13 144,146 3.38
PROVISION FOR INCOME TAXES (5,590) (0.12) (1,000) (0.02)
-------------- -------------- -------------- --------------
NET INCOME $ 90,122 2.01% $ 143,146 3.35%
============== ============== ============== ==============
</TABLE>
See Accompanying Notes to Financial Statements and
Independent Auditor's Report.
<PAGE>
-5-
DENTAL RESOURCES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 90,122 $ 143,146
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 94,237 96,679
Amortization 500 499
Bad debts 3,364 4,671
Deferred income taxes 1,620
Gain on sale of assets (708) (10,000)
Changes in assets and liabilities:
(Increase) in receivables (129,667) (70,259)
(Increase) decrease in inventories (16,401) 33,738
(Increase) decrease in prepaid expenses (5,239) 3,440
(Increase) decrease in deposits (28,183) 39,575
Increase in income taxes payable 690 700
Increase (decrease) in accounts payable 126,942 (128,636)
Increase (decrease) in accrued liabilities 46,622 (5,007)
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 183,899 108,546
CASH FLOWS PROVIDED BY (USED IN) INVESTING
ACTIVITIES
Purchase of property and equipment (66,346) (99,252)
Proceeds from sale of property and equipment 10,000
-------------- --------------
NET CASH (USED IN) INVESTING ACTIVITIES (66,346) (89,252)
CASH FLOWS PROVIDED BY (USED IN) FINANCING
ACTIVITIES
Payments on long-term debt (36,268) (48,147)
Proceeds from long-term debt 4,000
Net payments on note payable - bank (49,174) (5,000)
Proceeds from issuance of common stock 1,000 5,000
-------------- --------------
NET CASH (USED IN) FINANCING ACTIVITIES (84,442) (44,147)
-------------- --------------
NET INCREASE (DECREASE) IN CASH 33,111 (24,853)
CASH - BEGINNING OF YEAR 13,512 38,365
-------------- --------------
CASH - END OF YEAR $ 46,623 $ 13,512
============== ==============
<CAPTION>
1999 1998
-------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 24,559 $ 36,084
============== ==============
Income taxes $ 2,280 $ 300
============== ==============
</TABLE>
See Accompanying Notes to Financial Statements and
Independent Auditor's Report.
<PAGE>
-6-
DENTAL RESOURCES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------
NUMBER ADDITIONAL
OF PAID-IN RETAINED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE - May 31, 1997 1,866,093 $ 18,661 $ 1,582,314 $ (712,479) $ 888,496
Common stock issued 33,334 333 4,667 5,000
Net income 143,146 143,146
-------------- -------------- -------------- -------------- --------------
BALANCE - MAY 31, 1998 1,899,427 18,994 1,586,981 (569,333) 1,036,642
Common stock issued 3,084 31 969 1,000
Net income 90,122 90,122
-------------- -------------- -------------- -------------- --------------
BALANCE - MAY 31, 1999 1,902,511 $ 19,025 $ 1,587,950 $ (479,211) $ 1,127,764
============== ============== ============== ============== ==============
</TABLE>
See Accompanying Notes to Financial Statements and
Independent Auditor's Report.
<PAGE>
-7-
DENTAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY -
Dental Resources, Inc. is principally engaged in manufacturing and marketing a
number of specialized dental products and packaging materials for use by the
dental and medical industries. The Company is incorporated in the State of
Minnesota as a C corporation. The Company grants credit to customers worldwide,
and these receivables are not collateralized.
USE OF ESTIMATES IN FINANCIAL STATEMENTS -
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
INVENTORIES -
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method.
PROPERTY AND EQUIPMENT -
Property and equipment are carried at cost and depreciated over their estimated
useful lives. When assets are retired, or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is recognized. The cost of maintenance and repairs is
expensed as incurred, and significant renewals and betterments are capitalized.
Depreciation of property and equipment is computed using the straight-line
method as follows:
Molds 3 to 7 Years
Furniture and fixtures 3 to 10 Years
Leasehold improvements 10 Years
Software 3 to 10 Years
<PAGE>
-8-
DENTAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS -
Advertising costs are expensed as incurred.
NET INCOME (LOSS) PER COMMON SHARE -
Net income (loss) per common share is calculated using the weighted average
number of common shares outstanding, including stock options and warrants
outstanding.
INCOME TAXES -
The Company is under the liability method specified by SFAS 109. Deferred tax
assets and liabilities are determined based on differences between the financial
statement and tax bases of assets and liabilities as measured by the enacted tax
rates which will be in effect when these differences reverse. Deferred tax
expense is the result of changes in deferred tax assets and liabilities.
Deferred income taxes arise primarily from the use of accelerated methods of
depreciation for tax purposes and recognition of federal net operating loss
carryforwards and investment tax credit carryforwards.
OTHER ASSETS -
The Company entered into a licensing agreement for the use of specific patents.
The agreement is being amortized over the remaining lives of the patents on a
straight-line method.
NOTE 2 - INVENTORY
Inventory consists of the following:
1999 1998
---- ----
Raw materials $282,282 $277,776
Finished goods 218,217 206,322
-------- --------
$500,499 $484,098
======== ========
<PAGE>
-9-
DENTAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
1999 1998
---- ----
Molds $591,647 $576,458
Furniture and fixtures 398,188 371,496
Leasehold improvements 74,281 67,860
Software 28,472 28,472
---------- ----------
$1,092,588 $1,044,286
========== ==========
NOTE 4 - NOTE PAYABLE - BANK
Note payable - bank represents a line of credit agreement with a bank with a
maximum borrowing facility of $350,000. The line of credit is secured by all
assets of the Company. Interest is payable monthly at prime plus 1.5% per annum
(currently 10%). The line of credit expires July 31, 1999. The outstanding
balance as of May 31, 1999 and 1998 was $244,989 and $294,163, respectively.
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
1999 1998
---- ----
Note payable to a bank in monthly installments of
$4,362, including interest at 9.5%; due January 31,
1999; secured by all assets of the Company. $33,268
Note payable to a company in monthly installments
of $500, due December, 1999; the note is unsecured
and non-interest bearing. 4,000
------- -------
37,268
Less: current portion 36,268
------- -------
Total Long-Term Debt $0 $ 1,000
== =======
<PAGE>
-10-
DENTAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 6 - COMMITMENTS
OPERATING LEASE -
The Company leases an office and manufacturing facility under an operating lease
from a partnership consisting of officers and directors of the Company. The
lease calls for monthly payments of $5,500 plus real estate taxes, insurance and
other miscellaneous costs. The lease expires October 31, 2000.
The Company leased warehouse space under an operating lease. The lease called
for monthly payments of $2,917 and expired October 31, 1998. As of October 1,
the Company leases a new facility under an operating lease from the same
partnership that owns the office and manufacturing facility. The lease calls for
monthly payments of $4,583 plus real estate taxes, insurance and other
miscellaneous costs. The lease expires September 30, 2003.
The Company leases certain equipment under an operating lease with monthly
payments of $429. The lease expires November 30, 1999.
Future, minimum obligations under the leases are as follows:
Real Estate Equipment Total
----------- --------- -----
Year ending May 31, 2000 $120,996 $2,574 $123,570
2001 82,496 82,496
2002 54,996 54,996
2003 54,996 54,996
2004 18,332 18,332
--------
$334,390
========
Total rent expense (including real estate taxes, insurance and other costs which
are required to be paid by the Company under a certain lease) was $138,264 and
$125,286 for the years ended May 31, 1999 and 1998, respectively.
<PAGE>
-11-
DENTAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 6 - COMMITMENTS
EMPLOYMENT CONTRACTS -
The Company has entered into five-year employment agreements with three
officers. Each agreement provides for a bonus based on net income of the Company
and for severance payments of three years' annual salary.
LONG-TERM COMPENSATION AGREEMENT -
The Company has a long-term compensation agreement with a key employee. The
agreement provides for 60 monthly payments of $1,500 (adjusted for cost of
living increases annually) to the key employee or to the spouse upon the death
of the key employee. The last payment is due August, 2000.
NOTE 7 - INCOME TAXES
The Company's income tax expense consists of the following as of May 31:
1999 1998
------ ------
Current year taxes $3,970 $1,000
Deferred taxes 1,620
------ ------
$5,590 $1,000
====== ======
The Company has Federal net operating loss carryforwards of approximately
$246,000 which expire through 2007
<PAGE>
-12-
DENTAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 7 - INCOME TAXES (CONTINUED)
The Company provides for deferred taxes on temporary differences arising from
assets and liabilities whose basis is different for financial reporting and
income tax purposes. Deferred income taxes arise primarily from the use of
accelerated methods of depreciation for tax purposes and recognition of federal
net operating loss carryforwards and investment tax credit carryforwards. Based
upon available evidence at the time, it was more likely than not that a portion
of this deferred tax asset would not be realized. Therefore, a valuation
allowance had been recorded for a portion of the deferred tax asset as of May
31, 1998.
1999 1998
---- ----
Deferred tax liability ($25,955) ($13,530)
Deferred tax asset 36,835 49,844
Valuation allowance (23,814)
------- -------
$10,880 $12,500
======= =======
NOTE 8 - ADVERTISING COSTS
Advertising expenses totaled $93,998 and $66,450 for the years ended May 31,
1999 and 1998, respectively.
NOTE 9 - STOCK OPTIONS AND WARRANTS
The Company has entered into the following transactions with respect to stock
options and warrants to purchase its common stock:
Number Exercise Expiration
of Shares Price Date
--------- -------- ----------
Balance - May 31, 1998 18,540 $.15 to $.35 November 1998 to
April 2001
Expired November 1998 to management (458) $.35
Exercised November, 1998 to
management (3,084) $.35 November 1998
Balance - May 31, 1999 14,998 $.16 to $.25 March 2000 to
====== April 2001
<PAGE>
-13-
DENTAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 10 - BENEFIT PLANS
The Company has a trusted profit sharing plan which covers all employees,
subject to various eligibility requirements such as months of service and age
limitations. Contributions to the plan are discretionary. The Company did not
make any contributions to the plan for the years ended May 31, 1999 and 1998.
Effective June 15, 1999 the trusted profit sharing plan was discontinued.
During the year, the Company approved a stock option plan which allows issuance
of options covering up to 550,000 shares of common stock. The exercise price for
each option is to be no less than 100% of the fair market value of the common
stock on the day the option is granted. There were no options granted under the
plan during the year ending May 31, 1999.
NOTE 11 - NET EARNINGS PER COMMON SHARE
Net earnings per common share, assuming no dilution, are computed by dividing
net earnings by the weighted average number of common shares outstanding during
each year adjusted for stock splits. Net earnings per common share, assuming
dilution, are computed as above and assume exercise of stock options.
1999 1998
---- ----
Net earnings $90,122 $143,146
======= ========
Net earnings per common share:
Assuming no dilution $.05 $.08
Assuming dilution $.05 $.07
Weighted average shares outstanding:
Assuming no dilution 1,901,226 1,878,593
Assuming dilution 1,917,694 1,923,305
<PAGE>
-14-
DENTAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 12 - MAJOR CUSTOMERS
The Company has sales to customers which, individually, contributed in excess of
10% of revenues for the years ended May 31.
1999 1998
---- ----
Number of customers 1 1
Revenue contributed $931,288 $763,945
Total revenue $4,483,200 $4,268,847
Percent of total revenue contributed 21% 18%
NOTE 13 - MAJOR SUPPLIERS
The Company has purchases from vendors which, individually, supplied in excess
of 10% of total purchases for the year ended May 31.
1999 1998
---- ----
Number of vendors 2 2
Purchases supplied $788,517 $851,144
Total purchases $2,500,674 $2,427,237
Percentage of total purchases supplied 32% 35%
