FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended April 30, 1997.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
COMMISSION FILE NO. 0-21394
DEVELOPED TECHNOLOGY RESOURCE, INC.
(Exact name of issuer as specified in its charter)
MINNESOTA 41-1713474
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
7300 METRO BLVD., SUITE 550, EDINA, MINNESOTA 55439
(Address of principal executive offices) (Zip Code)
(612) 820-0022
(Issuer's telephone number, including area code)
12800 WHITEWATER DRIVE, SUITE 170 MINNETONKA, MINNESOTA 55343
(Former address, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes____ No __X__.
State the number of shares outstanding of each of the issuer's classes
of common equity. As of July 17, 1997, there were 790,820 shares of Common
Stock, $.01 par value per share, outstanding.
DEVELOPED TECHNOLOGY RESOURCE, INC.
INDEX
FOR THE QUARTER ENDED APRIL 30, 1997
Page Number
-----------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
--------------------
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statements of Cash Flows 5
Notes to Condensed Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
---------------------------------------------
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 9
---------------------------------------------------
ITEM 6. Exhibits and Reports on Form 8-K 9
--------------------------------
SIGNATURES 10
DEVELOPED TECHNOLOGY RESOURCE, INC.
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
(UNAUDITED)
APRIL 30, OCTOBER 31,
ASSETS 1997 1996
- ------ ---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 199,834 $ 635,609
Receivables
Trade, net 21,529 126,811
Sale of business division 360,000 360,000
FoodMaster International L.L.C 403,724 --
Other -- 28,630
Inventory -- 205,999
Advance payments to suppliers 23,172 214,961
Prepaid and other current assets 40,030 34,670
---------- ----------
Total current assets 1,048,289 1,606,680
Furniture and equipment, net 31,883 513,553
Investment in Foodmaster International L.L.C 407,060 --
Receivable from sale of business division 280,000 280,000
Deferred acquisition costs -- 35,616
---------- ----------
$1,767,232 $2,435,849
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 48,626 $ 188,916
Notes payable -- 70,910
Accrued liabilities 184,002 316,044
Customer deposits 33,506 44,876
Deferred grant revenue 3,379 13,055
Deferred gain on sale of business division 341,707 341,707
---------- ----------
Total current liabilities 611,220 975,508
Deferred gain on sale of business division 280,000 280,000
Minority interest in joint venture -- 244,121
Shareholders' equity 876,012 936,220
---------- ----------
$1,767,232 $2,435,849
========== ==========
See accompanying notes to the condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED APRIL 30, SIX MONTHS ENDED APRIL 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Sales $ 828,331 $ 137,392 $ 2,160,017 $ 470,821
Management fees from FoodMaster
International L.L.C 199,205 -- 199,205 --
Commissions and other income -- 61,496 9,677 164,530
----------- ----------- ----------- -----------
1,027,536 198,888 2,368,899 635,351
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales 547,795 114,204 1,504,471 361,363
Selling, general, and administrative expenses 311,455 190,468 726,225 463,353
----------- ----------- ----------- -----------
859,250 304,672 2,230,696 824,716
----------- ----------- ----------- -----------
Operating income (loss) 168,286 (105,784) 138,203 (189,365)
Other Income(Expense):
Interest income and expense 6,531 12,958 13,238 31,660
Equity in loss of FoodMaster International (36,712) -- (36,712) --
----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income tax and minority interest 138,105 (92,826) 114,729 (157,705)
Income taxes 31,492 -- 75,500 --
----------- ----------- ----------- -----------
Income (loss) from continuing operations
before minority interest 106,613 (92,826) 39,229 (157,705)
Minority interest in earnings of joint venture (36,789) 25,607 (70,403) 55,774
----------- ----------- ----------- -----------
Income (loss) from continuing operations 69,824 (67,219) (31,174) (101,931)
Income (loss) from discontinued operations -- (3,254) -- 22,033
----------- ----------- ----------- -----------
Net income (loss) $ 69,824 ($ 70,473) ($ 31,174) ($ 79,898)
=========== =========== =========== ===========
Net Income (Loss) Per Common Share:
Primary:
Continuing operations 0.08 (0.08) (0.04) (0.12)
Discontinued operations 0.00 (0.00) 0.00 0.02
----------- ----------- ----------- -----------
$ 0.08 ($ 0.08) ($ 0.04) ($ 0.10)
=========== =========== =========== ===========
Fully Diluted:
Continuing operations 0.07 (0.08) (0.04) (0.12)
Discontinued operations 0.00 (0.00) 0.00 0.02
----------- ----------- ----------- -----------
$ 0.07 ($ 0.08) ($ 0.04) ($ 0.10)
=========== =========== =========== ===========
Weighted Average Common Shares Outstanding 969,352 838,966 801,203 838,966
(assuming full dilusion) =========== =========== =========== ===========
See accompanying notes to the condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED APRIL 30,
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ($ 31,174) ($ 79,898)
Adjustment to reconcile net loss to cash used
by operating activities:
Depreciation 55,056 27,603
Minority interest in earnings(loss) of joint venture 70,403 (55,774)
Changes in operating assets and liabilities:
Receivables (365,808) (103,049)
Inventories (206,871) 87,880
Prepaid and other current assets (43,290) 8,725
Advance payments to suppliers (17,524) (23,433)
Accounts payable and accrued liabilities 140,503 (357,427)
Deferred grant revenue (9,676) (83,507)
Customer deposits (11,370) 24,803
----------- -----------
Net cash used by operating activities (419,751) (554,077)
INVESTING ACTIVITIES:
Purchase of short-term investments -- (27,410)
Purchases of furniture and equipment 39,305 4,274
Advances/contributions to joint ventures (32,919) 555
Deferred acquisition costs (22,410) --
----------- -----------
Net cash used by investing activities (16,024) (22,581)
DECREASE IN CASH AND CASH EQUIVALENTS (435,775) (576,658)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 635,609 1,296,243
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 199,834 $ 719,585
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING AND INVESTING ACTIVITIES:
The Company contributed $314,524 in net assets of its FoodMaster-Almaty
operation to Foodmaster International L.L.C. for its 40% interest. The
non-cash effect of this contribution has been removed from the applicable
classifications shown above.
See accompanying notes to the condensed financial statements.
</TABLE>
DEVELOPED TECHNOLOGY RESOURCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
APRIL 30, 1997
(UNAUDITED)
1. Basis of Presentation
The interim financial statements of Developed Technology Resource, Inc.
(DTR) are unaudited, but in the opinion of management, reflect all
necessary adjustments for a fair presentation of the financial position,
as well as, the results of operations and cash flows for the periods
presented.
From November 1, 1997 through March 2, 1997, the condensed financial
statements include the combined accounts of DTR and FoodMaster, DTR's 50%
subsidiary in Kazakhstan. All significant intercompany transactions and
balances were eliminated in consolidation. Effective with an agreement
dated March 3, 1997 with Agribusiness Partners International L.P. (API) to
form FoodMaster International L.L.C. (FMI), activity subsequent to March 2
is recognized under the equity method to reflect DTR's 40% interest. Under
the equity method, DTR's share of the net income or losses of FMI is
reflected in the statement of operations.
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 DTR's Annual
Report and Notes thereto on Form 10-KSB for the year ended October 31,
1996.
2. Change in Method of Accounting for Earnings Per Share
In February 1997, the Finance and Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which is required to be adopted by DTR in the reporting period
ending January 31, 1998. At that time, DTR will be required to change the
method currently used to compute earnings per share and restate all prior
periods. Under the new standard for calculating basic earnings per share,
the dilutive effect of stock options will be eliminated. The impact of
implementing SFAS No. 128 on the calculation of earnings per share for the
periods ended April 30, 1997 and 1996 will not be material.
3. Investment in FoodMaster International L.L.C.
On March 3, 1997, DTR and API announced the formation of FMI to pursue
dairy opportunities in the former Soviet Union. Under this agreement, DTR
contributed to FMI the FoodMaster operations in Kazakhstan, the Ak-Bulak
option and its opportunities in Moldova. API agreed to fund $2.945 million
to further develop DTR's current contributions and to provide an
additional $3.055 million over the next two years to expand future FMI
opportunities. Under the agreement, API currently owns 60% and DTR owns
40% of FMI. However, DTR has the opportunity to earn greater economic
interest by reaching defined performance targets. DTR will account for its
40% interest in FMI under the equity method, recording its share of FMI's
operating results as equity in net income(loss) of partnerships and joint
ventures. Under a separate management agreement, DTR will manage the day
to day operations of FMI and its future subsidiaries for a management fee.
4. Stock Redemption
In the first quarter of fiscal 1997, 48,190 shares of common stock were
redeemed in exchange for the satisfaction of $29,036 in accounts
receivable owed by a former employee.
DEVELOPED TECHNOLOGY RESOURCE, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Statements other than current or historical information included in
this Management's Discussion and Analysis and elsewhere in this Form 10-QSB, in
future filings by Developed Technology Resource, Inc. (DTR) with the Securities
and Exchange Commission and in DTR's press releases and oral statements made
with the approval of authorized executive officers, should be considered
"forward-looking statements" made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. DTR wishes to caution the reader not to place undue reliance on any
such forward-looking statements.
On March 3, 1997, DTR and Agribusiness Partners International L.P.
(API) announced the formation of FoodMaster International L.L.C. (FMI) to pursue
dairy opportunities in the former Soviet Union (FSU). Under this agreement, DTR
contributed to FMI the FoodMaster operations in Kazakhstan, the Ak-Bulak option
and its opportunities in Moldova. API agreed to fund $2.945 million to further
develop DTR's current contributions and to provide an additional $3.055 million
over the next two years to expand future FMI opportunities. Under the agreement,
API currently owns 60% and DTR owns 40% of FMI. However, DTR has the opportunity
to earn greater economic interest by reaching defined performance targets. DTR
will account for its 40% interest in FMI under the equity method, recording its
share of FMI's operating results as equity in net income(loss) of partnerships
and joint ventures. Under a separate management agreement, DTR will manage the
day to day operations of FMI and its future subsidiaries for a management fee.
ONGOING BUSINESS STRATEGY
As the manager of operations for FMI, DTR's strategy is to expand FMI's
dairy processing business in Kazakhstan and other regions of the FSU. FMI
intends to exercise an option to purchase 80% of Ak-Bulak, FMI's partner in
FoodMaster Kazakhstan (FoodMaster), which will result in a 90% ownership of
FoodMaster by FMI. FMI has begun setting up operations in Moldova and started
production of certain products in Akmola, Kazakhstan's new capital.
DTR will continue to operate its x-ray tube and equipment sales
business and look for opportunities to expand sales when available.
RESULTS OF OPERATIONS
FOODMASTER KAZAKHSTAN (FOODMASTER) AND FOODMASTER INTERNATIONAL L.L.C. (FMI)
From February 1, 1997 through March 2, 1997, FoodMaster generated
$446,976 in sales, $275,436 in cost of goods sold and $311,455 in selling,
general & administrative expenses. These numbers were consolidated with DTR's
sales described below. For the three month period ended April 30, 1997, DTR
received fees of $199,205 for managing the operations of FMI. From November 1,
1996 through March 2, 1997, FoodMaster's consolidated sales and commissions were
$1,750,539, cost of goods sold were $1,199,212 and selling, general &
administrative expenses were $726,225. Since March 3, 1997, DTR reports its FMI
sales and related expenses, inclusive of FoodMaster results, under the equity
method to reflect its 40% investment in FMI. From March 3, 1997 to April 30,
1997, DTR's share of the loss under the equity method in FMI was $36,712.
X-RAY TUBES
X-ray tube sales for the three month and six month periods ended April
30, 1997 were $63,230 and $101,030, respectively. Cost of goods sold were
$54,580 and $87,480, respectively. During the same periods in 1996, sales were
$63,200 and $82,100 and cost of goods sold were $54,050 and $70,500,
respectively. Currently, DTR expects to maintain stability in X-ray tube sales
and the average profit margin of 13.5% to 14.5%.
FOOD PACKAGING EQUIPMENT
DTR recorded food packaging equipment sales of $318,125 during the
second quarter of fiscal 1997. The related cost of goods sold was $217,779;
resulting in $100,346 of gross profit. There were no food processing equipment
sales realized during the first quarter of fiscal 1997. For the three month and
six month periods ended April 30, 1996, DTR had equipment sales of $67,083 and
$221,543, respectively. Cost of goods sold during the same periods were $59,471
and $199,449, respectively. The gross profit margin on sales in fiscal 1997 were
20% higher due to DTR selling the equipment directly rather than through a
distributor.
DISCONTINUED OPERATIONS
Effective December 31, 1995, DTR entered into an agreement to sell
certain assets and the rights to its airport security equipment in the FSU to a
United Kingdom company owned by a former DTR employee. DTR transferred assets,
inventory, customer lists, promotional materials, and other items with a net
book value on January 31, 1996 of $143,293. In exchange for these items, DTR
received a cash payment of $45,000 to reimburse DTR for expenses related to this
business during the first quarter of fiscal 1996 and a note receivable totaling
$765,000 payable over the next 30 months. A portion of these payments are
personally guaranteed by the former employee, and are collateralized by his
ownership of 16,430 shares of DTR's common stock.
Due to the inherent risks associated with operating in the FSU,
including credit risk, the gain on this sale has been deferred and will be
recognized as payments are received. DTR received payments of $170,000 during
fiscal 1996 and no payments to date in fiscal 1997.
Additional contingent payments may also be received based on future
performance. DTR retained the right to pursue airport security management
contracts.
DEVELOPED TECHNOLOGY RESOURCE, INC.
PART II. OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Developed Technology Resource, Inc. (DTR) held its annual meeting of
shareholders on April 24, 1997 to elect its Directors and to approve
the Amendment to the 1992 Stock Option Plan. The shareholders elected
Peter L. Hauser, John P. Hupp and Roger W. Schnobrich to continue as
the Directors of DTR with 548,108, 548,108 and 548,442 votes FOR,
respectively and 40,970, 40,970 and 38,969 votes AGAINST, respectively.
Additionally, the shareholders approved an increase in the number of
shares reserved under the 1992 Stock Option Plan from 66,667 shares to
600,000 shares with a vote of 338,035 FOR, 60,309 AGAINST and 168
ABSTAINING.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed as part of this Form 10-QSB.
(a) EXHIBITS
11 Statement Regarding Computation of Per-Share Earnings
27 Financial Data Schedule
(b) REPORTS OF FORM 8-K
One report on Form 8-K was filed by Developed Technology Resource, Inc.
(DTR) on March 14, 1997 announcing the joint venture between DTR and
Agribusiness Partners International L.P. during the quarter ended April
30, 1997.
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: July 17, 1997 DEVELOPED TECHNOLOGY
RESOURCE, INC.
------------------------------------
(Registrant)
/s/ John P. Hupp
------------------------------------
John P. Hupp,
President
/s/ Lydia Bauer
------------------------------------
Lydia Bauer
Chief Financial Officer
<TABLE>
<CAPTION>
DEVELOPED TECHNOLOGY RESOURCE, INC.
EXHIBIT 11 -- STATEMENT REGARDING COMPUTATION OF PER-SHARE EARNINGS
THREE MONTHS ENDED APRIL 30, SIX MONTHS ENDED APRIL 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 790,820 838,966 801,203 838,966
Net effect of dilutive stock
options - based on the treasury
stock method using average
market price 91,279
-------- -------- -------- --------
Total 882,099 838,966 801,203 838,966
======== ======== ======== ========
Net income (loss) 69,824 (70,473) (31,174) (79,898)
======== ======== ======== ========
Per-share amount 0.08 (0.08) (0.04) (0.10)
======== ======== ======== ========
FULLY DILUTED:
Average shares outstanding 790,820 838,966 801,203 838,966
Net effect of dilutive stock
options - based on the treasury
stock method using the
quarter end market price, if
higher than average market
price 178,532
-------- -------- -------- --------
Total 969,352 838,966 801,203 838,966
======== ======== ======== ========
Net income (loss) 69,824 (70,473) (31,174) (79,898)
======== ======== ======== ========
Per-share amount 0.07 (0.08) (0.04) (0.10)
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<CASH> 199,834
<SECURITIES> 0
<RECEIVABLES> 785,253
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,048,289
<PP&E> 31,883
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,767,232
<CURRENT-LIABILITIES> 611,220
<BONDS> 0
0
0
<COMMON> 7,908
<OTHER-SE> 868,104
<TOTAL-LIABILITY-AND-EQUITY> 1,767,232
<SALES> 2,160,017
<TOTAL-REVENUES> 2,368,899
<CGS> 1,504,471
<TOTAL-COSTS> 2,230,696
<OTHER-EXPENSES> 36,712
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (13,238)
<INCOME-PRETAX> 114,729
<INCOME-TAX> 75,500
<INCOME-CONTINUING> (31,174)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,174)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
