UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT FOR THE
TRANSITION FROM _________ TO _________
COMMISSION FILE NUMBER 0-30608
DENTAL RESOURCES, INC.
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(Name of Small Business Issuer as Specified in its charter)
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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)
(Registrant's telephone number) (763) 972-3801
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CHECK WHETHER THE ISSUER: (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR
SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND
(2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES (X) NO ( )
THERE WERE 1,901,697 SHARES OF COMMON STOCK OUTSTANDING AT NOVEMBER 30, 2000.
<PAGE>
DENTAL RESOURCES, INC.
INDEX
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE NO.
--------
Balance Sheets as of November 30, 2000 and May 31, 2000 P. 1
Statements of Operations for the three and six months
ended November 30, 2000 and 1999 P. 3
Statements of Cash Flows for the six months
ended November 30, 2000 and 1999 P. 4
Statements of Stockholders' Equity for the period ended
November 30, 2000 P. 5
Notes to Financial Statements P. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS P. 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS P. 11
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS P. 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES P. 12
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS P. 12
ITEM 5. OTHER INFORMATION P. 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K P. 12
LIST OF EXHIBITS P. 13
SIGNATURES P. 14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DENTAL RESOURCES, INC.
BALANCE SHEETS
AS OF NOVEMBER 30 AND MAY 31, 2000
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<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
2000 2000
(UNAUDITED) (AUDITED)
------------ ------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash $ 11,448 $ 29,028
Accounts receivable - trade, less allowance for
doubtful accounts of $3,000 817,086 739,587
Accounts receivable - other 509 902
Inventories 706,485 596,442
Prepaid expenses 68,065 31,324
Deposits 7,750 1,500
Deferred income taxes 15,771 15,771
------------ ------------
TOTAL CURRENT ASSETS 1,627,114 1,414,554
------------ ------------
PROPERTY AND EQUIPMENT:
Property and equipment 1,436,133 1,388,144
Less: accumulated depreciation (796,738) (731,800)
------------ ------------
PROPERTY AND EQUIPMENT - NET 639,395 656,344
------------ ------------
OTHER ASSETS:
Patents and trademarks, less accumulated
amortization of $2,791 and $2,541 2,209 2,458
------------ ------------
TOTAL OTHER ASSETS 2,209 2,458
------------ ------------
TOTAL ASSETS $ 2,268,718 $ 2,073,356
============ ============
</TABLE>
See Accompanying Notes to Financial Statements
1
<PAGE>
DENTAL RESOURCES, INC.
BALANCE SHEETS
AS OF NOVEMBER 30 AND MAY 31, 2000
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<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
2000 2000
(UNAUDITED) (AUDITED)
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Line of credit note payable $ 244,764 $ 256,989
Current portion of long-term debt 38,400 38,400
Accounts payable 503,479 340,154
Accrued expenses 28,909 54,804
Income taxes payable 11,548 5,550
------------ ------------
TOTAL CURRENT LIABILITIES 827,100 695,897
------------ ------------
LONG-TERM LIABILITIES:
Long-term debt, less current portion shown above 74,518 80,572
Deferred income taxes 38,041 38,041
------------ ------------
TOTAL LONG-TERM LIABILITIES 112,559 118,613
------------ ------------
COMMITMENTS:
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 20,000,000 shares
authorized; 1,901,697 and 1,905,844 shares issued and
outstanding, respectively 19,017 19,058
Additional paid-in capital 1,598,981 1,593,369
Retained deficit (288,939) (353,581)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,329,059 1,258,846
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,268,718 $ 2,073,356
============ ============
</TABLE>
See Accompanying Notes to Financial Statements
2
<PAGE>
DENTAL RESOURCES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDING NOVEMBER 30, 2000 AND 1999
(UNAUDITED)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
2000 1999 2000 1999
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
SALES $ 1,369,023 $ 1,346,394 $ 2,739,618 $ 2,605,412
COST OF SALES 1,017,050 985,081 2,024,614 1,911,909
------------ ------------ ------------ ------------
GROSS PROFIT 351,973 361,313 715,004 693,503
EXPENSES
Marketing 153,264 159,969 325,218 319,634
General & Administrative 152,398 115,771 294,591 221,190
------------ ------------ ------------ ------------
TOTAL EXPENSES 305,662 275,740 619,809 540,824
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 46,311 85,573 95,195 152,679
OTHER INCOME (EXPENSE)
Finance charge income 6,669 (112) 8,344 3,893
Other income (expense) (400) (417) (2,036) (888)
Interest expense (9,908) (7,496) (17,763) (13,391)
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (3,639) (8,025) (11,455) (10,386)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 42,672 77,548 83,740 142,293
------------ ------------ ------------ ------------
PROVISION FOR INCOME TAXES 11,323 28,334 19,098 41,620
------------ ------------ ------------ ------------
NET INCOME $ 31,349 $ 49,214 $ 64,642 $ 100,673
============ ============ ============ ============
BASIC NET INCOME PER COMMON SHARE $ 0.02 $ 0.03 $ 0.03 $ 0.05
============ ============ ============ ============
DILUTED NET INCOME PER COMMON SHARE $ 0.01 $ 0.03 $ 0.03 $ 0.05
============ ============ ============ ============
AVERAGE BASIC SHARES OUTSTANDING 1,901,697 1,902,634 1,902,207 1,902,542
AVERAGE DILUTED SHARES OUTSTANDING 2,142,464 1,908,022 2,121,352 1,919,921
</TABLE>
See Accompanying Notes to Financial Statements
3
<PAGE>
DENTAL RESOURCES, INC
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 AND 1999
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<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 64,642 $ 100,673
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 64,938 52,228
Amortization 249 250
Compensation expense on warrants issued 7,380 --
Changes in assets and liabilities:
(increase) decrease in receivables (77,106) 5,708
(increase) decrease in inventories (110,043) (122,794)
(increase) decrease in prepaid deposits (36,741) (25,931)
(increase) decrease in deposits (6,250) 31,471
increase (decrease) in income taxes payable 5,998 39,378
increase (decrease) in acounts payable 163,325 (40,338)
increase (decrease) in accrued liabilities (25,895) (19,340)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 50,497 21,305
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (47,989) (133,198)
------------ ------------
NET CASH (USED IN) INVESTING ACTIVITIES (47,989) (133,198)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt -- 100,000
Payments on long-term debt (6,054) --
Net payments on note-payable-bank (12,225) (4,000)
Retirements of common stock (2,209) --
Proceeds from issuance of common stock 400 178
------------ ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (20,088) 96,178
------------ ------------
NET (DECREASE) IN CASH (17,580) (15,715)
CASH - BEGINNING OF PERIOD 29,028 46,623
------------ ------------
CASH - END OF PERIOD $ 11,448 $ 30,908
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during period for:
Interest $ 17,763 $ 13,391
============ ============
Income taxes $ 13,100 $ 1,700
============ ============
</TABLE>
See Accompanying Notes to Financial Statements
4
<PAGE>
DENTAL RESOURCES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED NOVEMBER 30, 2000
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<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
NUMBER ADDITIONAL
OF PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE ON MAY 31, 1999 1,902,511 $ 19,025 $ 1,587,950 $ (479,211) $ 1,127,764
Common stock issued 3,333 33 499 532
Compensation expense on warrants issued 4,920 4,920
Net Income 125,630 125,630
------------ ------------ ------------ ------------ ------------
BALANCE ON MAY 31, 2000 1,905,844 19,058 1,593,369 (353,581) 1,258,846
Common stock issued 1,853 19 381 400
Common stock retired (6,000) (60) (2,149) (2,209)
Compensation expense on warrants issued 7,380 7,380
Net income 64,642 64,642
------------ ------------ ------------ ------------ ------------
BALANCE ON NOVEMBER 30, 2000 1,901,697 $ 19,017 $ 1,598,981 $ (288,939) $ 1,329,059
============ ============ ============ ============ ============
</TABLE>
See Accompanying Notes to Financial Statements
5
<PAGE>
DENTAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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1. INTERIM FINANCIAL STATEMENTS
The information furnished in this report is unaudited but reflects all
adjustments (which include only normal recurring adjustments) which are
necessary, in the opinion of management, for the fair presentation of the
results of the interim period. Actual results for the three and six months
ending November 30, 2000 and 1999 are not necessarily indicative of the results
to be expected for the full fiscal year. These statements should be read in
conjunction with the Company's most recent Annual Report on form 10-KSB.
2. NET EARNINGS PER COMMON SHARE
Basic net income per share is based on the weighted average number of common
shares outstanding during each year. Diluted net income per common share
includes the dilutive effect of potential common shares outstanding. The company
calculates the dilutive effect of outstanding stock options and warrants using
the treasury stock method. A reconciliation of earnings per share for the three
and six months ended November 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, 2000 NOVEMBER 30, 1999
BASIC DILUTED BASIC DILUTED
------------------------ ------------------------
<S> <C> <C> <C> <C>
Net earnings 31,349 31,349 49,214 49,214
------------------------ ------------------------
Average shares outstanding 1,901,697 1,901,697 1,902,634 1,902,634
Effect of dilutive securities:
Options and Warrants 0 240,767 0 5,388
------------------------ ------------------------
Equivalent shares 1,901,697 2,142,464 1,902,634 1,908,022
------------------------ ------------------------
Earnings per share $ 0.02 $ 0.01 $ 0.03 $ 0.03
======================== ========================
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, 2000 NOVEMBER 30, 1999
BASIC DILUTED BASIC DILUTED
------------------------ ------------------------
Net earnings 64,642 64,642 100,673 100,673
------------------------ ------------------------
Average shares outstanding 1,902,207 1,902,207 1,902,542 1,902,542
Effect of dilutive securities:
Options and Warrants 0 219,145 0 17,379
------------------------ ------------------------
Equivalent shares 1,902,207 2,121,352 1,902,542 1,919,921
------------------------ ------------------------
Earnings per share $ 0.03 $ 0.03 $ 0.05 $ 0.05
======================== ========================
</TABLE>
6
<PAGE>
3. RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed in the period in which the expenses
are incurred. Research and development costs for the three month period ended
November 30, 2000 were $1,135 as compared to $1,294 for the three month period
ended November 30, 1999. Research and development costs for the six month period
ended November 30, 2000 were $3,149 as compared to $1,692 for the six month
period ended November 30, 1999.
4. MARKET SEGMENT INFORMATION
The Company has one reportable segment which is the manufacturing and marketing
of five associated groups of dental related products. The Company's five product
groups are: Proform thermo-forming equipment and supplies, Hygienist chemicals
and consumables, Packaging products, Procure ultraviolet light-cured ovens and
composites, and Pro-flex denture materials. These products are sold worldwide.
The Company does not currently own any assets outside the United States. Gross
revenues by product group are as follows:
<TABLE>
<CAPTION>
SALES BY PRODUCT GROUP
THREE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, 2000 NOVEMBER 30, 1999
TOTAL DOMESTIC FOREIGN TOTAL DOMESTIC FOREIGN
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PROFORM $ 668,749 $ 434,687 $ 234,062 $ 673,710 $ 437,912 $ 235,798
HYGIENIST 287,976 201,583 86,393 265,599 185,919 79,680
PACKAGING 364,701 273,526 91,175 325,792 244,344 81,448
PROCURE 18,686 13,080 5,606 18,304 12,813 5,491
PROFLEX 28,911 26,020 2,891 62,989 56,690 6,299
---------------------------------------------------------------------------------
TOTALS 1,369,023 948,896 420,127 1,346,394 937,678 408,716
=================================================================================
<CAPTION>
SALES BY PRODUCT GROUP
SIX MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, 2000 NOVEMBER 30, 1999
TOTAL DOMESTIC FOREIGN TOTAL DOMESTIC FOREIGN
---------------------------------------------------------------------------------
PROFORM $ 1,298,174 $ 843,813 $ 454,361 $ 1,283,339 $ 834,170 $ 449,169
HYGIENIST 540,765 378,535 162,230 490,058 343,041 147,017
PACKAGING 800,702 600,527 200,175 679,621 509,716 169,905
PROCURE 38,252 26,776 11,476 35,929 25,150 10,779
PROFLEX 61,725 55,553 6,172 116,465 104,818 11,647
---------------------------------------------------------------------------------
TOTALS 2,739,618 1,905,204 834,414 2,605,412 1,816,895 788,517
=================================================================================
</TABLE>
5. STOCK OPTIONS AND WARRANTS
In 1998, the Company approved a stock option plan which allows issuance of stock
options to officers and key employees. The exercise price for each option is to
be no less than 100% of the fair market value of the common
7
<PAGE>
stock on the day the option is granted. Options under this plan have a term of
five years. In fiscal year 2000, options to purchase 190,100 shares of common
stock were issued to officers and employees under this plan. A total of 550,000
shares of common stock have been reserved for this plan of which 359,900 shares
remained available to be issued as of November 30, 2000.
In fiscal year 2000, the Company also granted stock warrants to officers,
directors, and consultants of the Company. The Warrants granted to officers and
directors which total 162,500 shares worth of common stock allow the holder to
purchase the Company's common stock at $0.20 per share. The Warrants granted to
the consultants of the Company which total 100,000 shares worth of common stock
were granted as consideration for assisting the Company in identifying and
evaluating strategic business opportunities and helping to negotiate and
structure any potential transactions over the next two years. The warrants
issued to the consultants also allow the holder to purchase the Company's common
stock at $0.20 per share. All warrants have a term of five years.
No options or warrants were granted during the six months ended November 30,
2000.
The Company follows 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. There was no compensation expense recorded for options and
warrants issued to officers and employees. Compensation expense for stock
warrants issued to non-employee consultants is being expensed equally over the
two-year life of the consulting agreement based on a calculation of the fair
value of the warrants issued using the Black-Scholes option pricing model. The
Company recognized $7,380 of compensation expense for the six months ended
November 30, 2000 and no compensation expense for the six months ended November
30, 1999. The compensation expense recorded for the six months ended November
30, 2000 is included in General and Administrative expense on the Company's
statement of operations.
The fair value of the options and warrants granted in fiscal year 2000 was
estimated using the Black-Scholes option pricing model, using the following
assumptions:
Risk-Free Interest Rate 6.32%
Expected Life 5 years
Expected Volatility 80.6%
Dividend Yield 0.0%
The following summarizes transactions for stock options and warrants for the
year ended May 31, 2000 and the six months ended November 30, 2000:
<TABLE>
<CAPTION>
Stock Options Warrants
------------------------ ------------------------
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding at May 31, 1999 14,998 $ 0.21 -- $ --
Issued 190,100 0.44 262,500 0.20
Exercised (3,333) 0.16 -- --
---------- ----------
Outstanding at May 31, 2000 201,765 0.43 262,500 0.20
Exercised (1,853) 0.22 -- --
Expired (1,600) 0.25 -- --
---------- ----------
Outstanding at November 30, 2000 198,312 $ 0.43 262,500 $ 0.20
========== ==========
</TABLE>
8
<PAGE>
All stock options and warrants are fully vested and currently exercisable as of
November 30, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion contains forward looking statements, which we have made pursuant
to the safe-harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward looking statements reflect our current views with respect to such
future events. Actual results may vary materially and adversely from those
anticipated, believed, estimated or otherwise indicated. Factors that could
cause actual results to differ adversely include, without limitation, unexpected
laboratory results in clinical studies, inability to secure targeted product
endorsers, and timing differences between the scheduled and actual launch date
of new products. Without limiting the foregoing, the words "believes,"
"anticipates, "Plans," "expects," and similar expressions are intended to
identify forward-looking statements. In addition, forward looking statements
include, but are not limited to, statements regarding future financing needs,
future revenues, future profitability and factors affecting future liquidity. A
number of important factors could cause the Company's actual results to differ
materially from those indicated in the forward-looking statements in this
discussion. We do not undertake to update any forward-looking statement that may
be made from time to time by us or on our behalf.
INTRODUCTION
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. The Company is principally engaged in the manufacturing and
distribution of a number of specialized dental products and packaging materials
for use by the dental and medical industries. The Company has a fiscal year of
May 31.
RESULTS OF OPERATIONS
Results of Operations For the Three Months Ended November 30, 2000 and 1999.
For the quarter ended November 30, 2000, the Company recorded revenues of
$1,369,000, an increase of approximately 2% compared to $1,346,000 for the same
period in 1999. This change is attributable to increased sales in three of the
Company's product lines; Hygienist, Procure, and Packaging. A slight decrease in
sales of the Proform line was experienced as sales of vacuum forming equipment
begins to slow. The Pro-flex line continued experiencing decreases as the
Company has temporarily suspended promotion of the line until problems with
staining and cracking of the products within the line can be researched. Gross
profits decreased to $352,000 for the quarter ended November 30, 2000 from
$361,000 in 1999. The decrease in gross profits was due to the decrease in
revenues experienced in the Proflex line. Gross profit as a percent of sales
decreased slightly to 25.7% in the quarter ending November 30, 2000 compared to
26.8% in 1999.
Marketing expenses for the quarter ending November 30, 2000 decreased to
$153,000 from $160,000 in 1999, a decrease of 4%. The majority of the decrease
is attributable to decreased promotion of the Proflex line of products and a
slight decrease in employee benefits from changing health insurance providers.
General and administrative expenses increased to $152,000 for the quarter ended
November 30, 2000 from $116,000 in 1999, an increase of 31%. Legal and
accounting expenses relating to public securities filings were the primary
reason for the increase in general and administrative expenses. An additional
factor contributing to the increase in general and administrative expenses was
related to maintenance of the company's ISO-9000 quality system as the company
prepares to comply with the latest standards that are being imposed.
Interest expense increased to $9,900 for the quarter ended November 30, 2000
from $7,500 in 1999. The increase in interest is a combination of increased
borrowing of term notes coupled with overall increases in interest rates. Income
taxes decreased to $11,000 for the quarter ended November 30, 2000 from $28,000
in 1999. The decrease
9
<PAGE>
was due to a decrease in net profits from operations. Net Income for the quarter
ended November 30, 2000 fell to $31,000 from $49,000 in 1999.
Results of Operations For the Six Months Ended November 30, 2000 and 1999.
For the six months ended November 30, 2000, the Company recorded revenues of
$2,740,000, an increase of approximately 5% compared to $2,605,000 for the same
period in 1999. This change is attributable to increased sales in four of the
Company's product lines; Proform, Hygienist, Procure, and Packaging. The
Pro-flex line continued experiencing decreases as the Company has temporarily
suspended promotion of the line until problems with staining and cracking of the
products within the line can be researched. Gross profits increased to $715,000
for the six months ended November 30, 2000 from $694,000 in 1999. The increase
in gross profits was primarily due to the increases in revenues experienced in
the four mature lines. Gross profit as a percent of sales decreased slightly to
26.1% in the six months ending November 30, 2000 compared to 26.6% in 1999.
Marketing expenses for the six months ending November 30, 2000 increased
slightly to $325,000 from $320,000 in 1999, an increase of 2%. The majority of
the increase is attributable to adjustments to salaries and wages to keep pace
with inflation. General and administrative expenses increased to $295,000 for
the six months ended November 30, 2000 from $221,000 in 1999, an increase of
33%. Legal and accounting expenses relating to public securities filings
accounted for nearly half of the total increase in general and administrative
expenses. Maintenance of the company's ISO-9000 quality system as the company
prepares to comply with the latest standards that are being imposed also
contributed to the increases. Finally, maintenance and depreciation expenses
relating to the companies computer systems also increased as the company
continues to prepare for electronic data exchange between its primary customers
and vendors.
Interest expense increased to $18,000 for the six months ended November 30, 2000
from $13,000 in 1999. The increase in interest is a combination of increased
borrowing of term notes coupled with overall increases in interest rates. Income
taxes decreased to $19,000 for the six months ended November 30, 2000 from
$42,000 in 1999. The decrease was due to a decrease in net profits from
operations. Net Income for the six months ended November 30, 2000 fell to
$65,000 from $101,000 in 1999.
On November 30, 2000 the Company's total assets were $2,269,000, compared to
$2,073,000 at May 31, 2000. The increase was due primarily to increases in
accounts receivable, inventories, and investments in property and equipment used
for production. Total liabilities increased from $815,000 at May 31, 2000 to
$940,000 at November 30, 2000. The increase was primarily in accounts payable as
inventories were adjusted to keep pace with increased sales volumes.
Liquidity and Capital Resources.
During the six month period ending November 30, 2000, operations of the Company
produced a positive cash flow from operations of $50,000. The prior year
produced positive cash flows from operations of $21,000 in comparison. The
increase in operating cash flows is primarily caused by an increase in accounts
payable as inventories are increased to keep pace with expanding sales volumes.
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. As of November 30, 2000, the Company had used $245,000
of the credit line leaving a balance of $105,000 available. The Company has
traditionally borrowed capital from time to time on term basis to finance
necessary purchases of specific capital equipment. As of November 30, 2000, the
balance due on all outstanding term loans used for capital equipment purchases
was $113,000. 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.
10
<PAGE>
The Company intends to continue developing its existing product lines and
expanding it's manufacturing capacity. It is estimated that the Company may
borrow up to $150,000 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 extrusion and thermo-forming
lines. 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 further 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 over the next two years.
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. Historically, the
first quarter of operations has always been the strongest for the Company due to
increased sales of its Pro-form mouthguard line to athletes returning to school
in the fall. The six months ended November 30, 2000 showed sales that would
correlate with this seasonal trend. 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.
FUTURE EXPECTATIONS
Management of the Company expects sales of its current product lines to show a
slight growth over the prior year. Increases in the Proform line are expected to
come mainly from materials rather than machines. Management believes that the
domestic market for vacuum machines has become saturated and sales to foreign
markets will only allow the Company to maintain current market share for this
particular product. Sales of the Hygienist and Packaging lines are expected to
remain steady as long as the overall health of the economy stays strong. The
Company is currently working on new products within the packaging line, which
management expects to offer some excellent opportunities for growth in this
line. Sales in the Procure line should remain relatively constant for the next
two quarters. Management continues to expect a slight drop off in the Proflex
lines until the Company completes testing of the modified product and begins to
promote the product again.
The Company continues to enjoy good relations with its distributors, both
domestically and internationally. Dental Resources continues to introduce
innovative new products, streamline its production facilities, and implement
advanced technologies to strengthen its position with current channels of
distribution to assure continued growth in the healthcare industry.
Management expects that recent and upcoming investments in capital equipment
used in manufacturing will allow gross margins to be increased on existing
product lines leading to higher net profits. Management also expects these same
investments to help increase capacity in areas where the Company had previously
approached maximum capacity levels limiting expansion of those particular lines.
Management expects selling and administrative expenses as a percent of sales
revenue to decrease slightly, as sales revenues continue to increase in the
coming periods leading to increased profitability.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
No options or warrants were issued by the company during the quarter ended
November 30, 2000.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on December
7, 2000. Shareholders holding 1,349,641 shares, or approximately 71% of
outstanding shares, were represented at the meeting by proxy or in person.
Matters submitted at the meeting for vote by the shareholders were as follows:
a. Election of Directors.
The following nominees were elected to serve as members of the Board of
Directors until such time as a successor may be elected:
Number of Votes
---------------
For Against Abstain
--- ------- -------
Russell Felten 1,348,541 1,100 NONE
Earl Johnson 1,348,541 1,100 NONE
Douglas Murphy 1,348,541 1,100 NONE
Bryan Nichols 1,348,541 1,100 NONE
All of the foregoing individuals are incumbent directors and represent
re-elections.
b. Ratification of election of independent auditors.
Shareholders ratified the selection of Olsen Thielen & Co., Ltd. as the
Company's independent auditors for the fiscal year ending May 31, 2001 by a vote
of 1,340,351 in favor, 8,290 against, and 1,000 abstained.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file nor was it required to file any reports on Form 8-K
during its fiscal quarter ended November 30, 2000.
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LIST OF EXHIBITS
The following exhibits are filed with this Form 10-QSB:
Assigned Number Description
Exhibit 3.1.1 Restated Articles of Incorporation*
Exhibit 3.1.2 Restated Bylaws*
Exhibit 11 Statement Regarding Computation of Earnings Per Share**
Exhibit 27 Financial Data Schedule**
---------------------
* - Previously filed with Form 10-SB filed March 7, 2000.
** - Filed herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DENTAL RESOURCES, INC.
By: /s/
-------------------------------------
Bryan A. Nichols
Vice President and Chief Financial
Officer
Date: January 12, 2001
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