FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 31, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to ________________________
COMMISSION FILE NO. 0-21394
DEVELOPED TECHNOLOGY RESOURCE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1713474
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
12800 WHITEWATER DRIVE, SUITE 170, MINNETONKA, MINNESOTA 55343
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(Address of principal executive offices) (Zip Code)
(612) 938-7080
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
838,966 common shares, $.01 par value, were outstanding as of July 31, 1996.
DEVELOPED TECHNOLOGY RESOURCE, INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Unaudited Financial Statements
Condensed Balance Sheets as of July 31, 1996
and October 31, 1995 3
Condensed Statements of Operations for the three
and nine month periods ended July 31, 1996 and 1995 4
Condensed Statements of Cash Flows for the
nine month periods ended July 31, 1996 and 1995 5
Notes to Condensed Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION 12
<TABLE>
<CAPTION>
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
JULY 31, OCTOBER 31,
ASSETS 1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 639,210 $1,296,243
Short-term marketable securities 81,887 53,717
Net receivable from sale of security equipment business 18,293 --
Accounts receivable, net 84,142 98,547
Inventory -- 87,880
Prepaid and other current assets 10,292 20,136
Advance payments to suppliers 56,303 46,601
---------- ----------
Total current assets 890,127 1,603,124
Property and equipment, net 65,265 106,507
Investment in partnerships and joint ventures, net 464,453 217,479
---------- ----------
Total assets $1,419,845 $1,927,110
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 53,985 $ 468,985
Accrued liabilities 238,401 175,395
Deferred grant revenue 33,558 137,455
Customer deposits 49,857 51,906
---------- ----------
Total current liabilities 375,801 833,741
Shareholders' equity 1,044,044 1,093,369
---------- ----------
Total liabilities and shareholders' equity $1,419,845 $1,927,110
========== ==========
</TABLE>
See accompanying notes to the condensed financial statements.
<TABLE>
<CAPTION>
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JULY 31, NINE MONTHS ENDED JULY 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Equipment sales $ 261,530 $ 1,179,563 $ 732,351 $ 1,463,963
Commissions and other income 75,735 19,614 240,265 74,228
----------- ----------- ----------- -----------
Total revenues 337,265 1,199,177 972,616 1,538,191
----------- ----------- ----------- -----------
Cost of equipment sales 233,030 719,835 595,996 948,305
Selling, general, and administrative expenses 146,527 893,080 608,277 1,788,629
----------- ----------- ----------- -----------
Total costs and expenses 379,557 1,612,915 1,204,273 2,736,934
----------- ----------- ----------- -----------
Operating loss (42,292) (413,738) (231,657) (1,198,743)
Interest income 17,906 18,612 49,569 72,955
Interest expense (67) (84) (70) (286)
Equity in net income (loss) of partnerships and joint ventures 55,095 (1,086) 110,869 (5,797)
----------- ----------- ----------- -----------
Income (loss) from continuing operations 30,642 (396,296) (71,289) (1,131,871)
Income (loss) from discontinued operations (67) (180,706) 21,966 (115,140)
----------- ----------- ----------- -----------
Net income (loss) $ 30,575 ($ 577,002) ($ 49,323) ($1,247,011)
=========== =========== =========== ===========
Net income (loss) per common share - continuing operations $ 0.04 (0.46) ($ 0.08) ($ 1.29)
Net income (loss) per share - discontinued operations (0.00) (0.21) 0.02 (0.13)
----------- ----------- ----------- -----------
Net income (loss) per share $ 0.04 ($ 0.67) ($ 0.06) ($ 1.42)
=========== =========== =========== ===========
Weighted average common shares outstanding 838,966 856,694 838,966 880,986
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the condensed financial statements.
<TABLE>
<CAPTION>
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED JULY 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net loss ($ 49,323) ($1,247,011)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization 40,545 36,219
Loss on sale of property and equipment 6,494 --
Equity in net (income) loss of partnerships and joint ventures (110,869) 5,797
Changes in assets and liabilities:
(Increase)decrease in accounts receivable (3,888) 87,743
Decrease(increase) in inventories 87,880 (217,957)
Decrease(increase) in prepaid and other current assets 9,844 (22,774)
(Increase) in advance payments to suppliers (9,702) (818)
(Decrease)increase in accounts payable and accrued liabilities (351,994) 671,114
(Decrease) in deferred grant revenue (103,897) --
(Decrease)increase in customer deposits (2,049) 488,417
----------- -----------
Net cash used in operating activities (486,959) (199,270)
----------- -----------
Cash flow from investing activities:
(Purchase)sale of short-term investments (28,170) 1,886,986
(Purchase) of property and equipment (5,799) (5,059)
Advances/contributions to joint ventures, net (136,105) (63,321)
----------- -----------
Net cash (used in) provided by investing activities (170,074) 1,818,606
----------- -----------
Increase (decrease) in cash and cash equivalents (657,033) 1,619,336
Cash and cash equivalents:
Beginning of period 1,296,243 230,199
----------- -----------
End of period $ 639,210 $ 1,849,535
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest 70 202
</TABLE>
See accompanying notes to the condensed financial statements.
DEVELOPED TECHNOLOGY RESOURCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JULY 31, 1996
(UNAUDITED)
1. Basis of Presentation
The interim financial statements are unaudited, but in the opinion of
management reflect all normal recurring adjustments necessary for a fair
presentation of the results of operations, financial position and cash
flows for the interim periods.
The results of operations for any interim period are not necessarily
indicative of results for the full year.
These financial statements should be read in conjunction with the
Company's Annual Report and Notes thereto on Form 10-KSB for the year
ended October 31, 1995, and filed with the Securities and Exchange
Commission on January 26, 1996, and the 10-KSB/A, filed with the
Commission on February 27, 1996.
Certain prior period amounts have been reclassified to conform to the
current period presentation with no impact on net loss or shareholders'
equity.
2. Short-Term Marketable Securities
Short-term marketable securities consist of U.S. Treasury Notes,
commercial paper and bank certificates of deposit with a maturity of
greater than three months but less than one year. These securities are
carried at cost, which approximates market, adjusted for amortization of
premiums and accretion of discounts under the interest method. The Company
intends to hold these securities to maturity.
3. Accounts Receivable
Accounts receivable are net of the allowance for doubtful accounts. The
receivable balance as of July 31, 1996 was $312,752, net of an allowance
for doubtful accounts of $210,317.
4. Stock Split
In December, 1995, the Company declared a 1 for 3 reverse stock split. All
amounts included in the financial statements and related notes give
retroactive effect to the reverse stock split. The Company also amended
its articles of incorporation to reduce all authorized shares by
two-thirds.
5. Discontinued Security Systems Sales and Service Business
Effective December 31, 1995, the Company entered into an agreement selling
certain assets and the rights to the sale of airport security equipment in
the former Soviet Union to a company owned by a former employee. For
payments over the next 30 months totaling $810,000, the Company
transferred assets, inventory, customer lists, promotional materials, and
other items having book value of $143,293 net of liabilities. The $810,000
amount includes reimbursement of $45,000 in expenses incurred by the
Company during the first quarter of fiscal 1996 and related to this
business. Due to the inherent risks of operating in the former Soviet
Union, including the granting of credit, the gain on this sale will be
recognized only as realized in the form of cash receipts. Cash receipts on
the receivable balance have been $125,000 year to date.
The prior year's condensed unaudited financial statements have been
restated to reflect the effects of the sale of the Security Systems Sales
and Service Business.
6. Subsequent Transaction
Subsequent to the end of the quarter, the Company entered into an
agreement which gives it the right to purchase 80% of Joint Stock Company
Ak-Bulak ("Ak-Bulak"), DTR's dairy partner in FoodMaster, for 85.2 million
tenge ($1.27 million at the July 31st exchange rate). During the three
year contract period, the Company has the right to vote 80% of the shares
of Ak-Bulak. The purchase price consists of the following:
-Purchase of 80% of the dairy for 17 million tenge ($253,600 at the
July 31st exchange rate)
-Payment of certain debts of the dairy amounting to 43.2 million tenge
($644,400 at the July 31st exchange rate) to be paid over a period of 22
months.
-Capital investment of 25 million tenge ($372,900 at the July 31st
exchange rate) to be paid over a period of 20 months.
Payments made by the Company will be recorded as deferred acquisition
costs.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
Developed Technology Resource, Inc. (the "Company" or "DTR") was
incorporated on November 13, 1991 in the State of Minnesota to locate
potentially viable technologies in the former Soviet Union (FSU) for transfer
and sale to companies in the West. During the first two years of operation, the
Company experienced limited success from its efforts to locate and sell
technology, and shifted its focus from the transfer of FSU technology to the
United States to the sale and distribution of equipment and services to
organizations in the FSU. The Company also developed business opportunities in
the FSU, including the opening of business centers and the forming of a joint
venture to process and sell dairy products in Kazakhstan.
Revenue in fiscal 1995 was primarily from the sale and installation of
airport security and food packaging equipment, and also included proceeds from a
one-time sale of sports-related technology. A limited amount of revenue was from
the Company's Moscow post office-based business centers and from the sales of
x-ray tubes manufactured in Russia and sold by DTR in the United States. In
June, 1995 the Company, through FoodMaster, its joint venture in Kazakhstan,
started manufacturing and selling dairy products. While no significant
contribution was made to the Company's operations in 1995, revenues continued to
grow during the third quarter of fiscal 1996, exceeding $340,000 for the month
of July. As the Company is not a majority or controlling shareholder, the
activities of this joint venture are not consolidated, and only that portion of
net operating results are recorded.
In the third quarter of fiscal 1995, the Company's Board of Directors
approved a restructuring plan that focused efforts on those businesses felt to
offer the greatest potential for future profitability. After reviewing each
business unit individually, a restructuring plan was implemented that reduced
the Company's activities in Russia to those areas offering the greatest
potential for increasing long-term shareholder value. As part of the plan,
management reduced or eliminated participation in those under-performing profit
centers (food packaging equipment sales and technology joint ventures) not
having the future business potential necessary to provide an acceptable rate of
return at an acceptable level of risk. At the same time the number of business
activities was reduced, overhead was reduced to the level necessary to
effectively support continuing operations.
SALE OF SECURITY EQUIPMENT DISTRIBUTION BUSINESS
During the quarter ended January 31, 1996 the Company executed an
agreement with its Director of Security Equipment Sales agreeing to the sale of
certain assets and the Company's rights to sell airport security equipment in
regions of the former Soviet Union. This transaction is more fully described at
the end of Item 2, Discontinued Operations. The financial statements and related
information have been adjusted to reflect the sale of this business.
FOODMASTER JOINT VENTURE IN KAZAKHSTAN
During fiscal year 1995, the Company formed FoodMaster, a Kazakhstan
limited liability company owned in equal parts by the Company and Joint Stock
Company Ak-Bulak ("Ak-Bulak"), a Kazakhstan company, for the purpose of
manufacturing and selling dairy products under license from the Company. The
Company applied for and received a $299,000 grant from the United States Agency
for International Development (USAID) to help finance the project. During fiscal
1995, the Company received $151,871 from the USAID under terms of the grant,
with an additional $109,411 received during the first nine months of fiscal
1996.
FoodMaster started producing yogurt in July, 1995 and kefir, milk, sour
cream and cottage cheese in October, 1995. Sales have increased steadily,
reaching $340,000 for the month of July, 1996. Additional growth is anticipated
due to well received and competitively priced products, and the introduction of
new products such as ice cream, orange juice and a premium sour cream.
The Company currently accounts for its FoodMaster joint venture under
the equity method of accounting, recording only its share of FoodMaster's
operating results as equity in net income or loss of partnerships and joint
ventures. DTR also derives revenue from FoodMaster in the form of a licensing
fee at 25% of net income before the licensing fee, having supplied the joint
venture with marketing expertise, proprietary formulas and trade secrets, and
DTR-owned brand names. Licensing fees of $55,095 and $110,869 were included in
other income for the third quarter of fiscal 1996 and year to date,
respectively. Because of the licensing payments received by the Company from
FoodMaster, the Company has agreed to receive only a one-third share of
operating results. As all activity conducted by FoodMaster is conducted in the
local currency (the Tenge), conversion, timing, and other translation issues may
arise that in the future may affect the amount actually realized by DTR.
RESULTS OF OPERATIONS
REVENUES
Revenue from operations has been adjusted to eliminate discontinued
operations related to sales and distribution of security equipment. For the
three and nine month periods ended July 31, 1996, total revenues were $337,265
and $972,616, respectively, compared to $1,199,177 and $1,538,191 for the three
and nine month periods ended July 31, 1995. Revenues decreased in the third
quarter of fiscal 1996 compared to the third quarter of fiscal 1995 due to the
reduced sales of food packaging equipment, and the recording of a one-time sale
of sports-related technology and the elimination of the business center activity
which took place in fiscal 1995. Food packaging equipment sales declined during
the quarter due to the delay in receiving final payments and completion of
manufacturing. These decreases were offset by increases in the licensing fee
received from FoodMaster and sales of x-ray tubes. Revenue for the nine month
period ended July 31, 1996 decreased from the prior year due to decreases in the
sale of food packaging equipment and the recording of the one-time sale of
sports-related technology in fiscal 1995. These were partially offset by the
increases in the licensing fee from FoodMaster and x-ray tube sales and current
year grant revenue recognition.
COST OF EQUIPMENT SALES
Cost of equipment sales reflects the cost to purchase equipment and the
shipping, insurance and other expenses directly related to the sale and
installation. Cost of equipment sales for the three and nine month periods ended
July 31, 1996 were $233,030 and $595,996. Cost of equipment sales were $719,835
and $948,305 for the three and nine month periods July 31, 1995. The decrease in
cost of equipment sales for the three and nine month periods are directly
related to the fluctuation in sales.
The gross profit on equipment sales for the three and nine months ended
July 31, 1996 was 10.9% and 18.6%, compared to 39.0% and 35.2% for the same
periods last year. The decrease in gross profit compared to fiscal 1995 is the
result of food packaging equipment being sold through a subdistributor at a
lower margin than in prior periods and a higher margin recognized on the
one-time sale of sports-related technology recorded in the prior periods. These
are offset by the higher gross profit on the favorable one-time adjustments
related to the elimination of business center activity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three and nine
month periods ended July 31, 1996 were $146,527 and $608,277, respectively,
compared to $893,080 and $1,788,629 for the three and nine month periods ended
July 31, 1995. Selling, general and administrative expenses for the third
quarter and year to date, have been reduced by $746,553 and $1,180,352,
respectively. These reductions are due primarily to staff cutbacks resulting
from the restructuring, combined with the reduction in related administrative
costs, including communications, rent, travel and lodging. The reduction in SG&A
for the current quarter also reflects the savings resulting from the closing of
the Moscow office, which took place at the end of February 1996. Operating
results for the third quarter ended July 31, 1995 also included expenses related
to the restructuring, and operating the laboratory in Tver, Russia, which was
closed during the third quarter of last year.
INTEREST INCOME
Interest income for the three and nine month periods ended July 31,
1996 was $17,906 and $49,569, respectively, compared to $18,612 and $72,955 for
the three and nine month periods ended July 31, 1995. The higher interest earned
last year was due to a higher level of excess working capital available for
investment. Interest income is derived from investing excess cash in short-term
instruments and cash equivalents, and other high grade marketable instruments
including commercial paper, treasury notes, and bank certificates of deposit.
EQUITY IN NET INCOME AND LOSS OF PARTNERSHIPS AND JOINT VENTURES
Equity in net income of partnerships and joint ventures of $55,095 and
$110,869 for the three and nine month periods ended July 31, 1996, respectively,
reflects the Companies one-third share of FoodMaster's operating profit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net losses since inception have been funded primarily
from financing activities, advance deposits received from customers, and profits
on the sale of equipment. Financing activities consisted of two private
placements in 1992 and an initial public offering of the Company's common stock
in 1993, resulting in total net proceeds of $4,623,052.
As of July 31, 1996, the Company had working capital of $514,326. As of
October 31, 1995, the Company's working capital balance was $769,383. Excess
cash is invested in short-term interest bearing instruments.
Funding of the Company's $49,323 loss for the nine months ended July
31, 1996 and prior losses accounts for the major use of working capital
provided. There were no significant purchases of furniture, fixtures or other
fixed assets.
Planned uses of working capital include the funding of selling, general
and administrative expenses. As approved and authorized by the Company's Board
of Directors, the Company may elect to invest limited amounts in future dairy
processing and packaging joint ventures if additional outside funding can be
obtained, along with a suitable partner and facilities.
Based on projections, the Company believes there will be sufficient
working capital and liquidity to fund operations through fiscal 1996, including
the funding of partnerships and joint ventures at the present level. However, if
projected revenues are less than anticipated, the Company may be forced to
reduce or forego future investments in partnerships or joint ventures, reduce
overhead, or seek additional financing.
DISCONTINUED OPERATIONS
Effective December 31, 1995, the Company entered into an agreement
selling certain assets and the rights to the sale of airport security equipment
in the former Soviet Union to a U.K. company owned by a former DTR employee. For
a combination of fixed and contingent payments, the Company transferred assets,
inventory, customer lists, promotional materials, and other items having an
approximate net book value on January 31, 1996 of $143,293, net of liabilities
assumed by the buyer.
Under terms of the agreement, the Company assigned to the former
employee all its rights under exclusive distribution agreements with its
principal suppliers, and agreed to cooperate to effect a smooth transfer of the
business. Consideration to be received by the Company includes a cash payment of
$45,000 intended to reimburse the Company for expenses related to this business
during the first quarter of Fiscal 1996, and payments over the next 30 months
totaling $765,000. A portion of these payments are personally guaranteed and are
collateralized by his ownership of 16,430 shares of the Company's Common Stock.
Additional contingent payments may also be received based on future performance.
The Company retained the right to pursue airport security management contracts.
Due to the inherent risks associated with doing business in the FSU,
including credit risk, the Company intends to record the note receivable at the
net value of the underlying assets sold and liabilities assumed by the buyer
totaling $143,293. As funds are collected beyond this amount, a process the
Company intends to actively manage, such amounts will be recognized as gain on
sale of discontinued operations.
AK-BULAK AGREEMENT
Because of the insolvency of Ak-Bulak, DTR's dairy partner in
FoodMaster, DTR won a tender in August of 1996 for the right to purchase the
dairy. The provisions of the tender allow for the purchase of 80% of the dairy
for 17 million tenge ($253,600 at the July 31st exchange rate) following the
payment of pre-defined debts of the dairy amounting to 43.2 million tenge
($644,400 at the July 31st exchange rate) and a capital investment of 25 million
tenge ($372,900 at the July 31st exchange rate) over two years. The tender
allows for DTR to take over the management of the dairy and to vote 80% of the
voting shares of Ak-Bulak at shareholder meetings. Management believes that the
debts can be settled for less than the stated amount. The investment capital
commitment has been met in part with the introduction of a new gable top
packaging machine, delivery truck, and sour cream packaging machine. Following
the exercise of the option, DTR will own 80% of Ak-Bulak and 90% of FoodMaster.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits
Exhibit 10 Material Contracts
"Contract for fiduciary management of
state shares of the Open Type Joint Stock
Company Ak-Bulak with their subsequent
buy-out option"
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: September 13, 1996 DEVELOPED TECHNOLOGY
RESOURCE, INC.
------------------------------------
(Registrant)
/s/ John P. Hupp
------------------------------------
John P. Hupp
President
/s/ David A. Gardner
------------------------------------
David A. Gardner
Controller
CONTRACT
for fiduciary management of state shares of the open type
joint stock company Ak-Bulak with their subsequent buy-out option
Almaty, Kazakhstan July 31, 1996
The present Contract is concluded between Almaty Territorial Committee for
Management of State Property (further herein as Territorial Committee),
represented by its Chairman K.K. Kurmashev, on the one side, and Corporation
Developed Technology Resource Inc., further herein as Manager, represented by
John Hupp, acting on the basis of the Charter, on the other side.
Acting on behalf of the state participant, Territorial Committee plans to
implement restructuring of the joint stock company of the open type Ak-Bulak
(further herein Organization), where the state holds 90% of shares of the
Charter Fund, of which 80% is being transferred to Manager and 10% are given for
realization to Organization's workers' collective.
Management of government shares and restructuring should increase the efficiency
of Organization's operations. To achieve this Territorial Committee has
announced an open tender for management of government shares and restructuring
of Organization. The Manager has won the tender in July 1996.
Protocol of the tender is an integral part of this Contract.
The Parties to the Contract agree as set forth below:
PART 1
SUBJECT OF THE CONTRACT
1.1 Territorial Committee has identified the future development of Organization
as the main priority. Considering Manager's experience and skills, Territorial
Committee transfers the state-owned shares of Organization under management with
the goal of maximizing operational efficiency.
1.2 Manager assumes the responsibility of managing Organization by the laws of
the Republic of Kazakhstan, international agreements and governmental
agreements.
1.3 Management entails a variety of activities and events, performed by Manager
on Organization's premises using Organization's funds as well as funds borrowed
or accumulated by Manager, aimed at development and technical restructuring of
Organization in order to:
- - create necessary financial stability that would allow implementation of
technical and economic policies that would improve production;
- - take measures to stabilize and further develop technical capabilities of the
existing production lines;
- - develop relationships and links with suppliers and distributors of finished
products of Organization on domestic and international markets;
- - continue improving social welfare of Organization's employees in order to keep
and create new jobs.
PART 2
GENERAL INFORMATION
2.1 Open type joint stock company Ak-Bulak was created on the basis of a decree
of Almaty Territorial Committee on _________ (date) and registered at the
Justice Department of Almaty Region. Organization's Charter is enclosed with
this Contract.
2.2 The Charter Fund of Organization is set at 21,414 thousand tenge (twenty one
million four hundred thirteen thousand nine hundred tenge). The total number of
shares is 21,414 (twenty one thousand four hundred fourteen) at the nominal
value of 1,000 (one thousand) tenge per share.
2.3 The Government owns 19,272 common shares for the total amount of 19,272
thousand tenge which comprises 90% of Organization's Charter Fund, of which 10%
or 2,141 shares totaling 2,141 thousand tenge are supposed to be given to the
workers' collective, and 80% or 17,131 shares totaling 17,131 thousand tenge are
transferred into Manager's fiduciary management.
Territorial Committee confirms that the state ownership shares were not given as
collateral, that they are not put out for sale, nor do third parties have any
ownership interest in them.
2.4 Manager is Corporation Developed Technology Resource Inc., registered in the
state of Minnesota, USA. DTR's representative office in Almaty was registered on
November 8, 1993 under N41-44-10/4, by the Frunzenski district administration,
and is recognized as a legal agent of Manager in Kazakhstan and manages business
deals on Manager's behalf.
Territorial Committee has copies of Manager's Charter and Foundation documents
as well as registration documents of DTR's Representative office in Almaty.
2.5 According to the conditions set forth in this Contract Territorial Committee
transfers and Manager assumes the rights and responsibilities of the state
participant of Organization with the right to purchase shares transferred under
his management.
2.6 Territorial Committee transfers to Manager under his fiduciary management
17,131 state common shares for the total amount of 17,131 thousand tenge, which
comprise 80% of the Charter Fund of Organization.
Territorial Committee will remain the owner of the state shares until Manager
buys them out; ownership and price of shares remains unchanged.
After Manager pays for all state shares, he receives ownership rights to assets
and working capital of Organization.
Manager will get the powers of the state participant pertinent to the
reorganization of Organization on the basis of the business plan.
PART 3
RIGHTS AND RESPONSIBILITIES OF MANAGER
3.1 Manager has the right to form entirely the management (AND PERSONNEL) of
Organization which is not limited to appointments of the Director, Chief
Accountant, and Chief Engineer of Organization.
3.2 Manager will manage the state shares during the duration of this Contract,
including but not limited to voting with 80% of shares at the meetings of
shareholders of Organization and other legal entities where Organization is a
co-founder or a shareholder.
3.3 Manager has the right to own, use, and manage assets and working capital of
Organization. Manager can use up to 30% of Organization's assets as collateral
for loans. Manager will need a written permission of Territorial Committee if he
intends to use more than 30% of the assets as loan collateral.
3.4 Manager can import and export agricultural products, equipment, and other
materials needed for export/import activities allowed by Kazakh laws.
Manager has the right to derive net profit on the annual basis.
3.5 Manager must sell 10% of shares to the workers' collective and distribute
dividends on the shares independently. Upon expiration of this Contract Manager
has the right to receive rewards for the entire period.
3.6 Manager is responsible to Territorial Committee for his obligations set
forth in this Contract.
3.7 Manager will be governed by the laws of the Republic of Kazakhstan and
conditions set forth in this Contract; Manager is responsible for all of
Organization's debts to the state, pension fund, salaries and wages, etc.
according to the Addendum 1.
3.8 Except for debts to the state and banks, Manager and its creditors determine
the order in which other debts should be repaid. Manager must live up to the
overall parameters of debt repayment schedule with deadlines stated in Addendum
2 and 3.
3.9 Manager does not automatically assume all debts of Organization. Manager
repays the debts of Organization only according to the repayment schedule set up
in the Addendum 1, which was discussed and approved by Territorial Committee on
the basis of the auditing report provided by the tender's auditors. Manager is
not responsible for debts not included in Addendum 1, created as a result of
inflation interest , appeals to arbitrage by creditors and others that had taken
place before or after the signing of this agreement, regardless of the legal
status of the creditor except for payments owed to the state, taxes and pension
payments.
3.10 Repayment of debts may be done by wiring money to the creditors' bank
accounts as well as offering goods and services in return for debts.
If a creditor, wanting to be repaid sooner, agrees to a smaller reimbursement
than the amount he is owed, Manager and the creditor have the right to settle
this by working out a special mutually advantageous agreement. Such debt is
considered compensated when the creditor signs a receipt form indicating the
amount of reimbursement he received.
3.11 Once in three months Manager must submit a written report to Territorial
Committee on the implementation of the investment obligations as set forth in
Addendum 4 and submit the annual report on the implementation of the investment
obligations no later than three months after the end of each fiscal year period.
3.12 Manager must consult Territorial Committee for any significant changes in
the business plan which may affect the principal goals and conditions of the
business plan. Territorial Committee must make a decision on the proposed
changes within 14 days of receiving them.
3.13 Manager declares that he had studied financial statements of Organization
prior to signing this Contract, and that he has analyzed accounting and other
financial reports of Organization and discussed them with Organization's
managers.
3.14 Manager has the power to register or re-register foundation documents of
the Joint Stock Company Ak Bulak at the Almaty regional justice committee and to
register the emission of shares at the Kazakh National Committee on Securities
in compliance with pertinent laws.
3.15 Manager is a legal heir to any debts payable by Organization according to
the auditors' reports.
3.16 Manager has the right to purchase the 80% of state shares in his fiduciary
trust ahead of the buyout schedule.
PART 4
RESPONSIBILITIES OF TERRITORIAL COMMITTEE
4.1 Territorial Committee has the right to periodically monitor implementation
of the conditions of this Contract by Manager.
In the case of a breach of a Contractual obligation by Manager Territorial
Committee informs Manager of that in writing and sets a timetable for bringing
Manager's performance in compliance with the conditions of the Contract. If
Manager fails to perform demands of Territorial Committee during the indicated
time frame, Territorial Committee can rescind the Contract according to the
applicable laws of the Republic of Kazakhstan.
4.2 Territorial Committee agrees not to make any decisions that may in any way
hinder the performance of the contractual duties, including decisions on the
sale of shares, introduction of the gold share, reorganization of Organization,
and other.
4.3 If Manager performs his contractual duties adequately, Territorial Committee
must allow the acquisition of shares being managed by Manager according to the
existing regulations in tenge at a price determined in Part 2 of this Contract.
4.4 If Manager completes his performance of contractual duties ahead of time,
Territorial Committee must allow Manager acquisition of shares being managed
ahead of time according to the conditions set forth in Part 2 of this Contract.
4.5 Territorial Committee delegates managerial duties to Manager by giving him
the power of attorney for fiduciary management of the state shares of the open
type joint stock company Ak-Bulak with a right to buy them out. Territorial
Committee guaranties Manager the right to the state shares transferred to him
under this Contract for the entire period of the Contract.
The Parties have agreed that by transferring the right to manage the state
shares to a third party Territorial Committee is considered to be in breach of
this Contract. In this case Territorial Committee (or its legal successor)
guarantees Manager, besides following the conditions for rescinding this
Contract, compensation in the amount equal to all Manager's investments in
Organization.
PART 5
RESPONSIBILITIES OF THE PARTIES
5.1 In the case of premature breach of this Contract by one Party, the Party at
fault must reimburse the other Party for all direct damages suffered as a result
of such breach.
5.2 The Parties are not responsible for full or partial non-performance of their
obligations under force majeure circumstances or actions of third parties, which
the Parties in this Contract are not responsible for, if such actions directly
affected the Parties' performance of their contractual obligations, and Manager
would have to interrupt his performance for longer than 3 (three) months. Force
major circumstances are any external events which cannot be avoided, including:
war, natural disasters (floods, earthquakes, power and communications
breakdowns, etc.). Force major or actions of third parties do not include
strikes or any other forms of protest of Organization's employees.
PART 6
CONCLUSION
6.1 Any matters that are not regulated by this Contract will be regulated by
applicable laws of the Republic of Kazakhstan and international agreements of
the Republic of Kazakhstan.
6.2 The Parties agree to make efforts to resolve any conflicts pertaining to the
performance of the Contractual obligations through negotiation.
When the Parties fail to resolve a conflict between each other, such cases will
be resolved by the judiciary branch of the Republic of Kazakhstan according to
the rules and procedures for such court cases contingent on the nature of the
conflict, or, if the Parties agree so, by a settlement committee consisting of
representatives of third parties.
6.3 Manager agrees not to disclose to third parties any information received
from Territorial Committee pertinent to the contractual performance without an
approval from Territorial Committee. If such approval is granted, any disclosure
of confidential information must be appropriately marked.
Above mentioned obligations are enforceable for three years after this Contract
expires and apply to Manager's employees and consultants as well.
6.4 The following people have the right to represent the Parties during the
performance of the contractual obligations:
for Territorial Committee:
Kuanysh Kurmashevich Kurmashev, Chairman of Almaty Territorial Committee on
State Property Management;
for Manager:
John Hupp, President of Developed Technology Resource, Inc.
Erlan Sagadiev, Manager of Kazakhstan Operations, Developed Technology Resource,
Inc.; General Director, FoodMaster.
In case of Manager restructuring or ownership change, all rights and
responsibilities set forth in this Contract will be transferred to Manager's
successor entity created as a result of such restructuring. The successor then
assumes full legal responsibility to perform Manager's obligations.
6.5 Any changes and addendum to this Contract are an integral part of it and
must be signed by all the Parties. In case of a discrepancy in the meaning and
content of the texts of this Contract and any addendum, documents dated by a
later date have priority in interpretation.
6.6 One copy of the original Contract is prepared for Territorial Committee and
one for Manager; both copies are equally enforceable.
6.7 This Contract is valid for 3 (three) years starting the day of transfer of a
power of attorney for fiduciary management of state shares with a buyout option
from Territorial Committee to Manager as set forth in Article 4.5 of this
Contract.
6.8 The Contract expires upon the settlement of all material conditions
pertinent to the buyout of state shares by Manager as set forth in Article 2.6
of this Contract. The Parties are to sign an document allowing for dissolution
of the Contract which will expire on the day of the signing.
6.9 The following Appendixes are an integral part of this Contract:
6.9.1 Debt Repayment Schedules - Appendixes 1, 2, 3.
6.9.2 Investment Schedule for Plant - Appendix 4.
6.9.3 Protocol of Tender N______ of _________________ 1996.
6.9.4 Organization's Charter
LEGAL ADDRESSES OF THE PARTIES
Almaty Territorial Committee Developed Technology Resource, Inc.
(Address) (Address)
SIGNED
- ----------------------- -----------------------
Kurmashev K.K. John Hupp
Chairman, Almaty President, DTR
Territorial Committee
-----------------------
Mikhail Ter-Vartanov
DTR's Representative in Almaty
<TABLE>
<CAPTION>
APPENDIX 1
DTR'S DEBT REPAYMENT SCHEDULE FOR AK-BULAK'S DEBTS
REPAYMENT
SECTION DESCRIPTION DEADLINE AMOUNT, TENGE NOTES
<S> <C> <C> <C>
I DEBTS TO THE STATE
Pension Fund 10.10.96 497,000
Budget (VAT and other) 10.10.96 599,000
-----------------
TOTAL DEBTS TO THE STATE 1,096,000
-----------------
II SALARIES AND WAGES After state
Collective's Salaries and Wages 10.10.96 348,000 debt repayment
-----------------
TOTAL SALARIES AND WAGES 348,000
-----------------
III BANK LOANS OUTSTANDING
Short Term Credit 10.11.96 3,200,000
-----------------
TOTAL BANK LOANS OUTSTANDING 3,200,000
-----------------
IV DEBTS TO OTHER CREDITORS The Manger establishes
All Other Creditors
set forth in Appendix 2 10.04.98 38,572,300 the order in which (See
(See Appendix 3 for Other Creditor debts to other creditors
Debts Repayment Schedule) are to be repaid,
accounting methods for
-----------------
TOTAL DEBTS TO OTHER CREDITORS 38,572,300 debt repayment according to
----------------- Article and Appendix 3
of this Contract.
=================
GRAND TOTAL DEBTS FOR REPAYMENT 43,216,300
=================
</TABLE>
APPENDIX 2
DEBT REPAYMENT SCHEDULE - OTHER CREDITORS
NAME DEBT AMOUNT, TENGE PRODUCT/SERVICE
1 Ilyicha Farm 3,287,078 Milk
2 Urozhai Farm 1,127,537 Milk
3 Baltabai Farm 1,787,197 Milk
4 Oktyabrski Farm 11,045,800 Milk
5 Djarsu Farm 503,316 Milk
6 Samal Farm 1,640,929 Milk
7 PSH Saz 291,048 Milk
8 Kara-Kemir 405,698 Milk
9 Djanashar Farm 1,433,938 Milk
10 Issyk Joint Stock Co. 4,342,459 Milk
11 Almaty Oil Storage 25,525 Fuel Oil
12 Alekseevskoe Auto Co. 2,364,889 Auto Services
13 UVIK 37,548 Water
14 IPAS 5,527,508 Electricity
15 Security Department 112,394 Security Services
16 Desert Cooperative 84,539 Materials
17 Kentas Enterprise 360,000 Salt
18 DIAP 532 Materials
19 Iskra GKO 324 Materials
20 Raidozostation 10,564 Services
21 AChP Adil 235,000 Materials
22 KSU-1 2,977,324 Construction Services
23 KSU-2 383,060 Construction Services
24 MChP Victor 289,131 Materials
25 Temp Company 182,044 Materials
26 DSU-13 116,834 Services
TOTAL 38,572,216
APPENDIX 3
DEBT REPAYMENT SCHEDULE FOR AK-BULAK'S DEBTS - OTHER CREDITORS
The beginning balance for debts after repayment of state and bank debts, tenge
43,216,300
DATE AMOUNT BALANCE
8/10/96 599,000 42,617,300
9/10/96 497,000 42,120,300
10/10/96 348,000 41,772,300
11/10/96 3,200,000 38,572,300
12/10/96 2,050,000 36,522,300
1/10/97 2,050,000 34,472,300
2/10/97 2,050,000 32,422,300
3/10/97 2,050,000 30,372,300
4/10/97 2,050,000 28,322,300
5/10/97 2,050,000 26,272,300
6/10/97 2,050,000 24,222,300
7/10/97 2,050,000 22,172,300
7/10/97 2,050,000 20,122,300
8/10/97 2,050,000 18,072,300
9/10/97 2,050,000 16,022,300
10/10/97 2,050,000 13,972,300
11/10/97 2,050,000 11,922,300
12/10/97 2,050,000 9,872,300
1/10/98 2,050,000 9,872,300
2/10/98 2,050,000 7,822,300
3/10/98 2,050,000 5,772,300
4/10/98 2,050,000 3,722,300
5/10/98 3,722,300 -
APPENDIX 4
SCHEDULE OF DTR'S INVESTMENT IN AK BULAK FOR TECHNICAL OVERHAUL
Investment, tenge 25,000,000
DATE AMOUNT BALANCE
8/10/96 1,850,000 23,150,000
9/10/96 8,450,000 14,700,000
10/10/96 1,850,000 12,850,000
11/10/96 1,850,000 11,000,000
12/10/96 1,850,000 9,150,000
1/10/97 - 9,150,000
2/10/97 - 9,150,000
3/10/97 1,000,000 8,150,000
4/10/97 1,000,000 7,150,000
5/10/97 1,000,000 6,150,000
6/10/97 1,000,000 5,150,000
7/10/97 - 5,150,000
7/10/97 - 5,150,000
8/10/96 - 5,150,000
9/10/97 - 5,150,000
10/10/97 2,000,000 3,150,000
11/10/97 1,000,000 2,150,000
1/10/98 1,850,000 2,150,000
2/10/98 1,850,000 300,000
3/10/98 300,000 -
Notes: Investments will be made according to the needs of production. Total
up-to-date amount of investment for technical overhaul and reconstruction will
be a control measure. The investment is considered de facto for reconstruction
purposes when assets are acquired and for technical overhaul when equipment is
purchased on the books.
ALMATY TERRITORIAL COMMITTEE
TENDER FOR FIDUCIARY MANAGEMENT
OF STATE SHARES OF
JOINT STOCK COMPANY AK-BULAK
A.
1. Investment of 20 million tenge set as follows: 1996 - 5 million tenge, 1997 -
7 million tenge, 1998 - 8 million tenge.
2. Repayment of debts to creditors for the total amount of 43.2 million tenge
from 1996 through the first half of 1998, including salaries and wages debts,
debts to the state, pension fund and short term loan debts payments prior to
11.01.96.
3. Maintaining the same staffing levels until 1998.
4. Retaining the same business specialization during a 3-year period.
5. Optimizing production levels.
6. Sustaining high levels of environmental preservation in operations.
B.
The state shares transferred into fiduciary management with a buyout option are
17,131 shares for the amount of 17,131.1 thousand tenge. This condition is
approved at a meeting of the Tender Committee (protocol # _____ from __________
(date)).
ALMATY TERRITORIAL COMMITTEE
POWER OF ATTORNEY #7
ALMATY JULY 31, 1996
Almaty Territorial Committee for management of state property, authorized by
Presidential decree of the Republic of Kazakhstan that has the power of a law on
privatization, on the basis of the final contract #7 signed on July 31, 1996 on
the fiduciary management of a company, entrusts Developed Technology Resource,
Inc. of Minneapolis, USA with a right to manage state shares in the joint stock
company Ak-Bulak.
Corporation Developed Technology Resource, Inc. which receives state shares in
Ak-Bulak equaling 80% of the Charter Fund with the right to own, use, and
manage, has the right to manage Joint Stock Company AK-Bulak and take part in
meeting of shareholders within the limits set forth in the contract.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 78,269
<SECURITIES> 560,941
<RECEIVABLES> 312,752
<ALLOWANCES> 210,317
<INVENTORY> 0
<CURRENT-ASSETS> 890,127
<PP&E> 194,742
<DEPRECIATION> 129,477
<TOTAL-ASSETS> 1,419,845
<CURRENT-LIABILITIES> 375,801
<BONDS> 0
0
0
<COMMON> 8,390
<OTHER-SE> 1,035,654
<TOTAL-LIABILITY-AND-EQUITY> 1,419,845
<SALES> 732,351
<TOTAL-REVENUES> 972,616
<CGS> 595,996
<TOTAL-COSTS> 595,996
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70
<INCOME-PRETAX> (182,158)
<INCOME-TAX> 0
<INCOME-CONTINUING> (71,289)
<DISCONTINUED> 21,966
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,323)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
