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 July 31, 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)
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 September 25, 1997, there were 790,820 shares of Common
Stock, $.01 par value per share, outstanding.
DEVELOPED TECHNOLOGY RESOURCE, INC.
INDEX
FOR THE QUARTER ENDED JULY 31, 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
<PAGE> 3
DEVELOPED TECHNOLOGY RESOURCE, INC.
ITEM 1: FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
July 31, October 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 216,937 $ 635,609
Receivables:
Trade, net 46,989 126,811
Sale of business division 360,000 360,000
FoodMaster International L.L.C. 339,393 --
Other 1,169 28,630
Inventory -- 205,999
Advance payments to suppliers -- 214,961
Prepaid and other current assets 38,500 34,670
----------- -----------
Total current assets 1,002,988 1,606,680
Furniture and Equipment, Net 27,962 513,553
Investment in FoodMaster International L.L.C. 315,221 --
Receivable from Sale of Business Division 280,000 280,000
Deferred Acquisition Costs 150,000 35,616
----------- -----------
$ 1,776,171 $ 2,435,849
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 63,061 $ 188,916
Notes payable -- 70,910
Accrued liabilities 164,000 316,044
Customer deposits -- 44,876
Deferred grant revenue -- 13,055
Deferred gain on sale of business division 141,707 341,707
----------- -----------
Total current liabilities 368,768 975,508
Deferred Gain on Sale of Business Division 280,000 280,000
Minority Interest in Joint Venture -- 244,121
Shareholders' Equity 1,127,403 936,220
----------- -----------
$ 1,776,171 $ 2,435,849
=========== ===========
</TABLE>
See accompanying notes to the condensed financial statements.
<PAGE> 4
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended July 31, Nine Months Ended July 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Sales $ 158,281 $ 261,530 $ 2,318,298 $ 732,351
Management fees from FMI 286,230 -- 485,435 --
Commissions and other income 23,497 75,735 33,174 240,265
----------- ----------- ----------- -----------
468,008 337,265 2,836,907 972,616
----------- ----------- ----------- -----------
Cost and Expenses:
Cost of sales 137,319 233,030 1,641,790 595,996
Selling, general and administrative 211,194 146,527 937,419 608,277
----------- ----------- ----------- -----------
348,513 379,557 2,579,209 1,204,273
----------- ----------- ----------- -----------
Operating Income (Loss) 119,495 (42,292) 257,698 (231,657)
Other Income (Expense):
Interest income (expense), net 579 17,839 13,817 49,499
Equity in net income (loss) of
joint ventures (68,682) 55,095 (105,394) 110,869
----------- ----------- ----------- -----------
Income (Loss) from Continuing Operations
Before Income Tax and Minority Interest 51,392 30,642 166,121 (71,289)
Income Taxes -- -- 75,500 --
----------- ----------- ----------- -----------
Income (Loss) from Continuing Operations
Before Minority Interest 51,392 30,642 90,621 (71,289)
Minority Interest in Earnings of
Joint Ventures -- -- (70,403) --
----------- ----------- ----------- -----------
Income (Loss) from Continuing Operations 51,392 30,642 20,218 (71,289)
Income(Loss) from Discontinued Operations 200,000 (67) 200,000 21,966
----------- ----------- ----------- -----------
Net Income (Loss) $ 251,392 $ 30,575 $ 220,218 $ (49,323)
=========== =========== =========== ===========
Net Income (Loss) per Common Share:
Primary:
Continuing operations $ 0.06 $ 0.04 $ 0.06 $ (0.08)
Discontinued operations 0.15 0.00 0.17 0.02
----------- ----------- ----------- -----------
$ 0.21 $ 0.04 $ 0.23 $ (0.06)
=========== =========== =========== ===========
Fully Diluted:
Continuing operations $ 0.06 $ 0.04 $ 0.06 $ (0.08)
Discontinued operations 0.15 0.00 0.17 0.02
----------- ----------- ----------- -----------
$ 0.21 $ 0.04 $ 0.23 $ (0.06)
=========== =========== =========== ===========
Weighted Average Common Shares Outstanding
(assuming full dilusion) 1,301,740 838,966 1,138,317 838,966
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the condensed financial statements.
<PAGE> 5
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended July 31,
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss) $ 220,218 $ (49,323)
Adjustments to Reconcile Net Income (Loss)
to Cash Used by Operating Activities:
Depreciation 32,817 40,545
(Gain) loss on sale of furniture and
equipment (7,045) 6,494
Gain on sale of business division (200,000) --
Minority interest in earnings (loss)
of joint venture 70,403 (110,869)
Changes in Operating Assets and Liabilities:
Receivables (371,981) (3,888)
Inventories (206,981) 87,880
Prepaid and other current assets (41,760) 9,844
Advance payments to suppliers 5,648 (9,702)
Accounts payable and accrued liabilities 134,934 (351,994)
Deferred grant revenue (13,055) (103,897)
Customer deposits (44,876) (2,049)
----------- -----------
Net cash used by operating activities (421,568) (486,959)
----------- -----------
INVESTING ACTIVITIES:
Purchase of Short-term Investments -- (28,170)
Proceeds from Sale of Furniture and Equipment 80,436 --
Purchases of Furniture and Equipment (7,926) (5,799)
Advances/Contributions to Joint Ventures (47,204) (136,105)
Deferred Acquisition Costs (22,410) --
----------- -----------
Net cash provided (used) by investing
activities 2,896 (170,074)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (418,672) (657,033)
CASH AND CASH EQUIVALENTS, Beginning of Period 635,609 1,296,243
----------- -----------
CASH AND CASH EQUIVALENTS, End of Period $ 216,937 $ 639,210
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURES 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. In
addition, the Company redeemed 48,190 shares of common stock in exchange for
$29,035 in accounts receivable. The non-cash effects of these transactions
have been removed from the applicable classifications shown above.
See accompanying notes to the condensed financial statements.
<PAGE> 6
DEVELOPED TECHNOLOGY RESOURCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
July 31, 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 July 31, 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 $29,035 in accounts
receivable owed by a former employee.
<PAGE> 7
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 its option in the fourth quarter of fiscal 1997 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 is continuing
to expand its operations in Moldova and 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)
For the three and nine month periods ended July 31, 1997, DTR received
fees of $286,230 and $485,435, respectively, for managing the operations of
FMI. From November 1, 1996 through March 2, 1997, the financial statements
report the consolidated accounts of FoodMaster and DTR. During this time
FoodMaster's consolidated sales and commissions were $1,724,798, cost of goods
sold were $1,195,016 and selling, general & administrative expenses were
$346,935. Since March 3, 1997 (the formation of FMI), 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 July 31,
1997, DTR's share of the loss under the equity method in FMI was $105,394.
<PAGE> 8
X-ray Tubes
X-ray tube sales for the three month and nine month periods ended July 31,
1997 were $63,400 and $164,430, respectively. Cost of goods sold were $54,715
and $142,645, respectively. During the same periods in 1996, sales were
$98,800 and $180,000 and cost of goods sold were $79,080 and $149,580,
respectively. Currently, DTR expects to maintain stability in X-ray tube
sales and an average profit margin of 13.0% to 14.0%.
Food Packaging Equipment
DTR recorded food packaging equipment sales of $94,881 and $428,890,
respectively, for the three and nine months ended July 31, 1997. The related
cost of goods sold was $82,604 and $304,129, respectively; resulting in 13%
and 29% gross profit. The gross profit margin on sales in fiscal 1997 were
higher than fiscal 1996 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 a $200,000 payment in August 1997. At July 31, 1997, a $200,000 gain
was recognized when it became apparent that DTR would collect this amount of
the receivable.
Additional contingent payments may also be received based on future
performance. DTR retained the right to pursue airport security management
contracts.
<PAGE> 9
DEVELOPED TECHNOLOGY RESOURCE, INC.
PART II. OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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
No report on Form 8-K was filed by Developed Technology Resource, Inc.
(DTR) during the quarter ended July 31, 1997.
<PAGE> 10
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 25, 1997 DEVELOPED TECHNOLOGY RESOURCE, INC.
-----------------------------------
(Registrant)
/s/ John P. Hupp
-----------------------------------
John P. Hupp,
President
/s/ LeAnn H. Davis
------------------------------------
LeAnn H. Davis
Chief Financial Officer
DEVELOPED TECHNOLOGY RESOURCE, INC.
EXHIBIT 11 -- STATEMENT REGARDING COMPUTATION OF PER-SHARE EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 790,820 838,966 797,704 838,966
Shares assumed exercised from
exercise of stock options 669,084 -- 446,056 --
Shares assumed to be repurchased
with proceeds from exercise
(subject to 20% limit) (158,164) -- (105,443) --
--------- --------- --------- ---------
Total common and common
equivalent shares 1,301,740 838,966 1,138,317 838,966
========= ========= ========= =========
Net Income (Loss) $ 251,392 $ 30,575 $ 220,218 $ (49,323)
Assumed interest revenue from
purchase of government
securities 23,800 -- 46,966 --
--------- --------- --------- ---------
Adjusted net income (loss) $ 275,192 $ 30,575 $ 267,184 $ (49,323)
========= ========= ========= =========
Per-share amount $ 0.21 $ 0.04 $ 0.23 $ (0.06)
========= ========= ========= =========
Fully Diluted:
Average shares outstanding 790,820 838,966 797,704 838,966
Shares assumed exerised from
exercise of stock options 669,084 -- 446,056 --
Shares assumed to be repurchased
with proceeds from exercise
(subject to 20% limit) (158,164) -- (105,443) --
--------- --------- --------- ---------
Total common and common
equivalent shares 1,301,740 838,966 1,138,317 838,966
========= ========= ========= =========
Net Income (Loss) $ 251,392 $ 30,575 $ 220,218 $ (49,323)
Assumed interest revenue from
purchase of government
securities 23,652 -- 45,029 --
--------- --------- --------- ---------
Adjusted net income (loss) $ 275,044 $ 30,575 $ 265,247 $ (49,323)
========= ========= ========= =========
Per-share amount $ 0.21 $ 0.04 $ 0.23 $ (0.06)
========= ========= ========= =========
NOTE: As the stock options assumed to be repurchased exceeds 20% of the shares
already outstanding, the treasury stock method has been modified, as
required, to assume the repurchase of up to 20% of the stock outstanding
with the excess invested in government securities.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 216,937
<SECURITIES> 0
<RECEIVABLES> 760,459
<ALLOWANCES> 12,908
<INVENTORY> 0
<CURRENT-ASSETS> 1,002,988
<PP&E> 27,962
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,776,171
<CURRENT-LIABILITIES> 368,767
<BONDS> 0
0
0
<COMMON> 7,908
<OTHER-SE> 1,119,496
<TOTAL-LIABILITY-AND-EQUITY> 1,776,171
<SALES> 2,318,298
<TOTAL-REVENUES> 2,836,907
<CGS> 1,641,790
<TOTAL-COSTS> 2,579,209
<OTHER-EXPENSES> 105,394
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (13,817)
<INCOME-PRETAX> 166,121
<INCOME-TAX> 75,500
<INCOME-CONTINUING> 90,621
<DISCONTINUED> 200,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 220,218
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
