UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
AMENDMENT NUMBER THREE
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
--------- ----------
(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
--------------
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.
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TABLE OF CONTENTS
PART I 3
Item 1. Description of Business.............................................3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................7
Item 3. Description of Property.............................................8
Item 4. Security Ownership of Certain Beneficial Owners and Management......9
Item 5. Directors and Executive Officers, Promoters and Control Persons....10
Item 6. Executive Compensation.............................................11
Item 7. Certain Relationships and Related Transactions.....................13
Item 8. Description of Securities..........................................13
PART II 14
Item 1. Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters....................................14
Item 2. Legal Proceedings..................................................15
Item 3. Changes in and Disagreements with Accountants......................15
Item 4. Recent Sales of Unregistered Securities............................15
Item 5. Indemnification of Directors and Officers..........................15
PART F/S...................................................................16
PART III 17
SIGNATURES 18
2
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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. Dental Resources is filing this Form 10-SB so that its shares of
common stock may be quoted and traded on the North American Securities Dealers
Automated Quotation (NASDAQ) Over-The-Counter Bulletin Board (OTC:BB).
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 process that the
Company acquired full title to in February of 1981, including rights, title and
interest to the Pro-form trademark and all applicable US registered patents. The
US patents applicable to the Pro-form laminate system expired in 1994. Sales of
products within this group currently comprise approximately 44% 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 16% 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 33% 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 1% 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. According to a survey conducted by the
American Dental Association in 1988, there were approximately 24 million
ill-fitting dentures in North America. As the population ages, the Company
believes this number will increase. The Pro-flex denture system was conceived to
address the problem of ill-fitting dentures by providing a more natural
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flexible fit than conventional dentures. Although this is a newly developed
product, the Company believes that the Pro-flex line has excellent potential as
a product that alleviates the problem of ill-fitting dentures. Sales of products
within this product group currently comprise about 5% of the Company's sales.
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 sales performance of the Pro-flex product line is meeting expectations. The
Company conservatively forecasted that the Pro-flex line could capture a modest
share of the ill-fitting denture market of approximately 10%. As measured by
sales to dental laboratories that the Company estimates provide dentures, the
Pro-flex line has sold to approximately 20% of those laboratories. However,
these sales have been at low volumes as the Company expected in the beginning
stages of its market introduction. 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 international quality assurance 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.
The company classifies its business into five major product groups: Proform
thermo-forming equipment and supplies, Hygienist chemicals and consumables,
Packaging products, Procure ultraviolet light-cured ovens and composites, and
Proflex denture materials. Sales from these products is currently worldwide with
approximately 30% of the total revenues coming from outside of the United
States. The company does not currently own any assets outside of the United
States. Gross revenues by product group are represented in the table below for
the fiscal years ending May 31, 1998 and May 31, 1999. Management feels that it
would not be practical to further segment revenues by individual country.
Management also feels that it would be impractical to report on selling and
administrative expenses or depreciation and amortization by product groupings.
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<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS
ENDING MAY 31, 1999 ENDING MAY 31, 1998
TOTAL DOMESTIC FOREIGN TOTAL DOMESTIC FOREIGN
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Proform 1,977,550 1,285,408 692,143 1,963,299 1,315,410 647,889
Hygienist 734,875 514,413 220,463 681,564 490,726 190,838
Packaging 1,491,457 1,118,592 372,864 1,488,254 1,116,191 372,063
Procure 65,660 46,619 19,042 59,888 43,120 16,769
Proflex 213,658 192,292 21,365 75,841 71,290 4,550
----------------------------------------------------------------------------------------
Totals 4,483,200 3,157,324 1,325,877 4,268,846 3,036,737 1,232,109
Gross Margin 29.66% 29.66% 29.66% 30.35% 30.35% 30.35%
Gross Profit 1,329,494 936,305 383,189 1,295,412 921,520 373,892
========================================================================================
</TABLE>
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 entered into royalty and license agreements covering
various products with the following companies or individuals:
* The Company has entered into a written license and royalty agreement
with ASTD Corporation (which has been attached as an exhibit to
Amendment Number Two to the Company's Form 10-SB), under which ASTD
Corporation granted the Company an exclusive license to produce, use
and sell certain anti-snoring products for a three-year period, which
period has expired. In addition, the Company has agreed to pay ASTD
Corporation approximately 5% of the gross sales of anti-snoring device
kits incorporating ASTD's anti-snoring products produced and sold by
the Company, which royalties continue for sales of anti-snoring device
kits incorporating ASTD's anti-snoring products by the Company despite
the expiration of the three-year exclusivity period.
* The Company has entered into a written license agreement with Dr.
Martin Nedderman and John Bedard (which has been attached as an
exhibit to Amendment Number Two to the Company's Form 10-SB), under
which Dr. Nedderman and Mr. Bedard granted the Company an exclusive
license to produce, use and sell the "Total Flex Denture" product for
a three-year period, which period has expired. In addition, the
Company has agreed to pay Dr. Nedderman and Mr. Bedard 7% of the
Company's gross domestic sales of the "Total Flex Denture" product,
which royalties continue for sales of the "Total Flex Denture" product
by the Company despite the expiration of the three-year exclusivity
period.
* The Company has entered into an oral agreement with Charles
Coykendahl, whereby Mr. Coykendahl has granted a license to the
Company to produce and sell "e-gaskets" based on Mr. Coykendahl's
design, in exchange for which the Company has agreed to pay $.15 per
piece for "e-gaskets" produced and sold by the Company.
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* The Company has entered into an oral agreement with Jerry Webb,
whereby Mr. Webb has granted a license to the Company to produce and
sell "Pro Guard" products based on Mr. Webb's design, in exchange for
which the Company has agreed to pay $.05 per piece for "Pro Guard"
products produced by the Company and sold to customers other than Mr.
Webb.
* The Company has entered into an oral agreement with Scott All Sports,
whereby Scott All Sports has granted a license to the Company to
produce and sell the "Scott All Sport Mouthguard" based on a design of
Scott All Sports, in exchange for which the Company has agreed to pay
$.05 per piece for each "Scott All Sport Mouthguard" produced and sold
by the Company.
* The Company has entered into an oral agreement with Tom Mayclin,
whereby Mr. Mayclin has granted a license to the Company to produce
and sell ceramic dental trays based on Mr. Mayclin's design, in
exchange for which the Company has agreed to pay $.50 per piece for
ceramic dental trays produced and sold by the Company.
Total royalties paid during the fiscal year ended May 31, 1999 on all of the
above royalty arrangements aggregated $12,822.46, the majority of which can be
attributed to the royalty arrangements with ASTD Corporation and Dr. Nedderman
and Mr. Bedard. The Company considers that the royalty arrangements with ASTD
Corporation and Dr. Nedderman and Mr. Bedard are the only listed royalty
arrangements that are material to the Company.
Need for any Government Approval of Principal Products:
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.
Research and Development:
Research and development costs are expenses in the period in which the expenses
were incurred. Research and development expenses for the periods ending May 31,
1998 and May 31, 1999 were $26,390 and $6,984 respectively.
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
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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
approximately $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. A
portion of this increase was due to an increase in the finance charge income.
During 1999, the Company implemented a policy change to improve cash flow from
slow paying customers by applying and collecting finance charges on past due
accounts, which in the past had either not been collected or had been forgiven.
On May 31, 1999 the Company's total assets were approximately $1.8 million,
compared to approximately $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 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.
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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 $1,924,868, compared to $1,760,269 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 $687,631 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 $107,426 to $1,237,237 from $1,129,811 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 $92,452. The prior year produced positive 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 not materially different than prevailing market rates and
conditions. 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.
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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 217,938 shares (1) 9.4%
3730 Lee Road Director
Minnetrista, MN 55364
Common William Murphy VP Sales 226,695 shares (1) 9.8%
18440 25TH Ave. N
Plymouth, MN 55447
Common Bryan Nichols VP Operations, CFO 160,000 shares (1) 6.3%
2130 54TH St. NW Director
Buffalo, MN 55313
</TABLE>
(1) Includes 40,000 shares of Common Stock issuable upon the exercise of
options presently exercisable or exercisable within the next 60 days by
Doug Murphy, William Murphy and Bryan Nichols.
(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:
<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 Russell 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>
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(1) Includes 40,000 shares of Common Stock issuable upon the exercise of
options presently exercisable or exercisable within the next 60 days by
Doug Murphy, William Murphy and Bryan Nichols.
(2) Includes 5,617 shares of Common Stock issuable upon the exercise of options
presently exercisable or exercisable within the next 60 days by Earl
Johnson.
(3) Includes 5,617 shares of Common Stock issuable upon the exercise of options
presently exercisable or exercisable within the next 60 days by Russell
Felten.
(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
Russell Felten 50 Director
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.
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Russell 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 form
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.
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.
EMPLOYMENT CONTRACTS
The Company has entered into an employment agreement with Douglas Murphy, the
President, Chief Executive Officer and a Director of the Company. Mr. Murphy's
employment agreement commenced on June 1, 1997 and has an initial five-year term
ending May 31, 2002. Mr. Murphy is entitled to receive a base salary of not less
than $90,846 annually, which is subject to cost-of-living adjustments on an
annual basis (even though Mr. Murphy was entitled to receive the base salary
contained in the contract, Mr. Murphy and the Company agreed to lower Mr.
Murphy's base salary in 1997 and 1998 to take into account the financial
performance of the Company). In addition to the annual salary, Mr. Murphy is
entitled to a quarterly bonus equal to five percent of the pre-tax net operating
profits of the Company. Upon termination of Mr. Murphy's employment due to
disability, the Company may offer Mr. Murphy "other employment" (as defined in
the agreement). If Mr. Murphy is disabled and the Company either determines not
to offer "other employment" to Mr. Murphy or terminates Mr. Murphy's other
employment, the Company will be obligated to pay Mr. Murphy severance pay equal
to the salary and bonus paid to Mr. Murphy over the preceding twelve-month
period. If Mr. Murphy's employment is terminated by the Company without cause or
Mr. Murphy dies during the term of the agreement, the Company will remain
obligated to pay Mr. Murphy the salary and bonus to which he is entitled under
the agreement for the remaining term of the agreement. Upon any consolidation or
merger of the Company followed by the termination of Mr. Murphy's employment
without cause,
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the Company or its successor will be obligated to pay Mr. Murphy severance pay
equal to the average of all salary and bonus earned by Mr. Murphy over the life
of the agreement.
The Company has entered into an employment agreement with William Murphy, the
Vice President of Sales of the Company. Mr. Murphy's employment agreement
commenced on June 1, 1997 and has an initial five-year term ending May 31, 2002.
Mr. Murphy is entitled to receive a base salary of not less than $90,846
annually, which is subject to cost-of-living adjustments on an annual basis
(even though Mr. Murphy was entitled to receive the base salary contained in the
contract, Mr. Murphy and the Company agreed to lower Mr. Murphy's base salary in
1997 and 1998 to take into account the financial performance of the Company). In
addition to the annual salary, Mr. Murphy is entitled to a quarterly bonus equal
to five percent of the pre-tax net operating profits of the Company. Upon
termination of Mr. Murphy's employment due to disability, the Company may offer
Mr. Murphy "other employment" (as defined in the agreement). If Mr. Murphy is
disabled and the Company either determines not to offer "other employment" to
Mr. Murphy or terminates Mr. Murphy's other employment, the Company will be
obligated to pay Mr. Murphy severance pay equal to the salary and bonus paid to
Mr. Murphy over the preceding twelve-month period. If Mr. Murphy's employment is
terminated by the Company without cause or Mr. Murphy dies during the term of
the agreement, the Company will remain obligated to pay Mr. Murphy the salary
and bonus to which he is entitled under the agreement for the remaining term of
the agreement. Upon any consolidation or merger of the Company followed by the
termination of Mr. Murphy's employment without cause, the Company or its
successor will be obligated to pay Mr. Murphy severance pay equal to the average
of all salary and bonus earned by Mr. Murphy over the life of the agreement.
The Company has entered into an employment agreement with Bryan Nichols, the
Vice President and Chief Financial Officer of the Company. Mr. Nichols'
employment agreement commenced on June 1, 1997 and has an initial five-year term
ending May 31, 2002. Mr. Nichols is entitled to receive a base salary of not
less than $90,846 annually, which is subject to cost-of-living adjustments on an
annual basis (even though Mr. Nichols was entitled to receive the base salary
contained in the contract, Mr. Nichols and the Company agreed to lower Mr.
Nichols' base salary in 1997 and 1998 to take into account the financial
performance of the Company). In addition to the annual salary, Mr. Nichols is
entitled to a quarterly bonus equal to five percent of the pre-tax net operating
profits of the Company. Upon termination of Mr. Nichols' employment due to
disability, the Company may offer Mr. Nichols "other employment" (as defined in
the agreement). If Mr. Nichols is disabled and the Company either determines not
to offer "other employment" to Mr. Nichols or terminates Mr. Nichols' other
employment, the Company will be obligated to pay Mr. Nichols severance pay equal
to the salary and bonus paid to Mr. Nichols over the preceding twelve-month
period. If Mr. Nichols' employment is terminated by the Company without cause or
Mr. Nichols dies during the term of the agreement, the Company will remain
obligated to pay Mr. Nichols the salary and bonus to which he is entitled under
the agreement for the remaining term of the agreement. Upon any consolidation or
merger of the Company followed by the termination of Mr. Nichols' employment
without cause, the Company or its successor will be obligated to pay Mr. Nichols
severance pay equal to the average of all salary and bonus earned by Mr. Nichols
over the life of the agreement.
STOCK OPTIONS AND WARRANTS
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.
DATE DATE NUMBER OF OPTION
OPTIONEE CAPACITY GRANTED EXPIRES SHARES PRICE
Russell Felten Director 12/15/94 12/14/99 1,111 0.16
Russell 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
Russell 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 Director 07/06/95 07/05/00 800 0.25
Russell 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
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John Ward Director 12/07/95 12/06/00 1,053 0.19
Russell 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
Russell 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 Director 04/24/96 04/23/01 800 0.25
Russell 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
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. No stock
based awards were issued under the plan as of the end of the Company's 1999
fiscal year. If such awards had been given, the company would have followed the
disclosure provisions of SFAS No. 123 "Accounting for Stock-Based Compensation,"
but applies APB Opinion No.25, "Accounting for Stock Issued to Employees" for
measurement and recognition of stock-based transactions with its employees.
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, except as follows: the Company leases
its 13,000 square foot facility at 530 River Street S. in Delano Minnesota from
its officers and directors. 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 from its officers and directors. 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 not less competitive than would be the case if the Company would
lease the facilities from unrelated third parties. 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 8. DESCRIPTION OF SECURITIES.
The Company's Restated Articles of Incorporation authorize the issuance of
20,000,000 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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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 quoted 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 eligibility to
be quoted 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 fiscal 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 1/2 3/8
Second Quarter 5/8 1/2
Third Quarter 1 1/8 1
Fourth Quarter 1 1/8 1
Fiscal 1999
First Quarter 1 3/8 1 3/16
Second Quarter 1 1/8 1
Third Quarter 1 7/8
Fourth Quarter 1 1/8 1
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.
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
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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.
Upon being notified by Froehling, Anderson, Plowman & Wasworth, Ltd. that it
declined to stand for re-election as the Registrant's certifying accountants
effective May 15, 2000, the Board of Directors of the Registrant approved
engaging Olsen Thielen & Co., Ltd as the Registrant's certifying accountant for
the year ended May 31, 2000. During the Registrant's two most recent fiscal
years and through May 15, 2000, there were no disagreements with Froehling,
Anderson, Plowman & Wasmuth, Ltd. on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Froehling, Anderson,
Plowman & Wasmuth, Ltd., would have caused that firm to make reference to the
subject matter of the disagreement in connection with its report. The change in
accountants was previously disclosed by the Company on its Form 8-K filed May
19, 2000.
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
granted to a former employee occurred during the 1998 fiscal year. Average
exercise price per share received was $0.15 per share. The Company relied on
exemptions afforded by Section 4(2) of the Securities Act of 1933 for these
sales. Reliance on Section 4(2) of the Securities Act of 1933 was premised on
the following: based upon knowledge of officers of the Company and oral
representations by the former employee, the Company reasonably believes that the
former employee had sufficient knowledge and experience in finance and business
matters to evaluate the risks and merits of his investment and was able to bear
the economic risks of his investment. In addition, the former employee had full
access to the type of information normally provided in a prospectus and agreed
not to resell or distribute the securities to the public unless the securities
were registered or an appropriate exemption permitted resale of the securities
without registration of such securities.
1999: Sales of 3,084 shares of unregistered securities upon exercise of options
granted to outside directors occurred during the 1999 fiscal year. Average
exercise price per share received was $0.32 per share. The Company relied on
exemptions afforded by Sections 4(2) and 4(6) of the Securities Act of 1933 for
these sales. Reliance on Section 4(2) of the Securities Act of 1933 was premised
on the following: based upon knowledge of officers of the Company and oral
representations by each of the outside directors, the Company reasonably
believes that each of the outside directors had sufficient knowledge and
experience in finance and business matters to evaluate the risks and merits of
his investment and was able to bear the economic risks of his investment. In
addition, each of the outside directors had full access to the type of
information normally provided in a prospectus and agreed not to resell or
distribute the securities to the public unless the securities were registered or
an appropriate exemption permitted resale of the securities without registration
of such securities. Reliance on Section 4(6) of the Securities Act of 1933 was
premised on the following: the outside directors qualify as "accredited
investors" under Rule 501(a)(4) of Regulation D (17 C.F.R. ss. 230.501(a)(4)),
and sales to "accredited investors" are exempt from registration under Section
4(6) of the Securities Act of 1933.
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
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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 incorporated by reference to the
Company's Second Amendment to Form 10-SB, filed July 14, 2000.
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PART III
The following exhibits have been previously filed by the Company with Form 10-SB
and Amendments Number One and Number Two for Form 10-SB:
Assigned Number Description
--------------- -----------
Exhibit 3.1.1 Restated Articles of Incorporation*
Exhibit 3.1.2 Restated Bylaws*
Exhibit 6.1 Douglas Murphy Employment Contract**
Exhibit 6.2 William Murphy Employment Agreement**
Exhibit 6.3 Bryan Nichols Employment Agreement**
Exhibit 10 Consent of Auditors**
Exhibit 10.1 Nedderman/Bedard Royalty Agreement**
Exhibit 10.2 Cook Royalty Agreement**
Exhibit 27 Financial Data Schedule*
----------------------
* - Previously filed with Form 10-SB, filed March 7, 2000.
** - Previously filed with Amendment Number Two to Form 10-SB, filed July 14,
2000
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: September 15, 2000.
DENTAL RESOURCES, INC.
By: /s/ Douglas B. Murphy
---------------------------
Douglas B. Murphy
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