<PAGE>
FORM 10-QSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number: 0-21394
Developed Technology Resource, Inc.
(Exact name of issuer as specified in its charter)
Minnesota 41-1713474
State of Incorporation I.R.S. Employer Identification No.
7300 Metro Boulevard, Suite 550
Edina, Minnesota 55439
Address of Principal Executive Office
(952) 820-0022
Issuer's Telephone Number
Check whether the issuer (1) has 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 registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
As of November 17, 2000, there were 930,820 shares of the
issuer's Common Stock, $0.01 par value per share, outstanding.
<PAGE>
DEVELOPED TECHNOLOGY RESOURCE, INC.
INDEX
For the Quarter Ended September 30, 2000
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Unaudited Consolidated Financial Statements
Condensed consolidated balance sheets 3
Condensed consolidated statements of operations 4
Condensed consolidated statements of cash flows 5
Notes to condensed consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Shareholders 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 16
<PAGE>
ITEM 1. CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
2000 1999
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 679 $ 193,319
Receivables:
From sale of discontinued operations 200,000 200,000
FoodMaster International L.L.C. (FMI) 1,867 --
Savory Snacks L.L.C. 200,216 323,521
Other 2,679 4,300
Note receivable, net of allowance
of $649,288 -- --
Prepaid and other current assets 10,389 23,044
Total current assets 415,830 744,184
Furniture and Equipment, net 19,554 35,161
Investment in Savory Snacks L.L.C. 75,390 --
$ 510,774 $ 779,345
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 49,800 $ 82,535
Due to FoodMaster International
L.L.C. (FMI) -- 7,991
Accrued liabilities 49,624 23,555
Deferred gain 184,758 184,758
Total current liabilities 284,182 298,839
Non-current Deferred Gain 12,660 14,951
Total liabilities 296,842 313,790
Shareholders' Equity:
Common stock 9,308 8,058
Additional paid-in capital 6,462,650 6,264,920
Note receivable (82,500) --
Accumulated deficit (6,175,526) (5,807,423)
Total shareholders' equity 213,932 465,555
Commitments and Contingencies -- --
$ 510,774 $ 779,345
</TABLE>
See accompanying notes to the condensed consolidated financial
statements.
<PAGE>
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues:
Sales $ -- $ -- $ -- $ 48,900
Management fees from FMI 10,713 271,277 25,713 933,358
Commissions and other income 769 1,350 2,291 4,008
11,482 272,627 28,004 986,266
Cost and Expenses:
Cost of sales -- -- -- 41,450
Selling, general and
administrative 94,767 298,352 347,109 989,098
94,767 298,352 347,109 1,030,548
Operating Loss (83,285) (25,725) (319,105) (44,282)
Other Income (Expense):
Interest income, net 935 15,723 2,144 48,454
Loss of Savory Snacks L.L.C. (16,903) -- (47,915) --
Loss of FMI -- (197,248) -- (555,678)
Net Loss Before Income Taxes (99,253) (207,250) (364,876) (551,506)
Income Taxes 3,227 -- 3,227 --
Net Loss $ (102,480) $ (207,250) $ (368,103) $ (551,506)
Net Loss per Common Share:
Basic $ (0.11) $ (0.26) $ (0.40) $ (0.68)
Diluted $ (0.11) $ (0.26) $ (0.40) $ (0.68)
Weighted Average Shares Outstanding:
Basic 930,820 805,820 916,678 805,820
Diluted 930,820 805,820 916,678 805,820
</TABLE>
See accompanying notes to the condensed consolidated financial
statements.
<PAGE>
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (368,103) $ (551,506)
Adjustments to reconcile net loss to cash
provided (used) by operating activities:
Depreciation 8,664 8,609
Provision for doubtful accounts -- (12,690)
Loss on disposition of furniture
and equipment 4,529 --
Equity in loss of FMI -- 555,678
Equity in loss of Savory Snacks
L.L.C. 47,915 --
Non-cash stock option compensation
expense 46,480 --
Changes in operating assets and liabilities:
Receivables 1,621 136,738
Receivable from FMI (9,858) 664,441
Receivable from Savory Snacks L.L.C. -- (200,000)
Prepaid and other current assets 12,655 (6,227)
Accounts payable and accrued
liabilities (6,666) (286,762)
Deferred gains (2,291) (4,008)
Net cash provided (used) by
operating activities (265,054) 304,273
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of furniture
and equipment 2,600 1,952
Purchases of furniture and equipment (186) (2,743)
Net cash provided by investing
activities 2,414 (791)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock
options 70,000 --
Net cash provided by financing
activities 70,000 --
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (192,640) 303,482
CASH AND CASH EQUIVALENTS, Beginning
of Period 193,319 5,412
CASH AND CASH EQUIVALENTS, End of Period$ 679 $ 308,894
</TABLE>
See accompanying notes to the condensed consolidated financial
statements.
<PAGE>
DEVELOPED TECHNOLOGY RESOURCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business
Developed Technology Resource, Inc. (DTR or the Company)
invests in and manages food processing operations in the
countries of the former Soviet Union (fSU) directly and
through FoodMaster International L.L.C. (FMI), its joint
venture with Agribusiness Partners International L.P. (API).
In addition to FMI, DTR managed the operations of its wholly-
owned subsidiary, SXD, Inc until January 2000 at which time
SXD was merged back into DTR.
During early 1999 SXD, Inc. distributed X-ray tubes under
DTR's exclusive agreement with a Russian manufacturer, issued
unsecured short-term loans, and held ownership interests in
the coatings technology business of Phygen, Inc. and the
cancer detection business of Armed which had no reportable
business activity during 1999. The x-ray tube distribution
agreement expired in March 1999. In 1999, the increase in
competition put pressure on the Company to lower its prices to
a level that would not be worth continuing this division.
Thus, DTR did not seek to renew its purchase or sales
contracts.
Effective April 1, 2000, DTR owns 40% of Savory Snacks L.L.C.
(Savory Snacks), a Wisconsin corporation that currently owns
100% of a snack food production company in Talgar, Kazakhstan.
The unaudited condensed consolidated financial statements have
been prepared by the Company, under the rules and regulations
of the Securities and Exchange Commission. The accompanying
condensed consolidated financial statements contain all normal
recurring adjustments which are, in the opinion of management,
necessary for the fair presentation of such financial
statements. Certain information and disclosures normally
included in the financial statements prepared in accordance
with accounting principles generally accepted in the United
States of America have been condensed or omitted under such
rules and regulations although the Company believes that the
disclosures are adequate to make the information presented not
misleading. The year-end balance sheet data was derived from
the audited financial statements, but does not include all
disclosures required by accounting principles generally
accepted in the United States of America. These unaudited
condensed consolidated financial statements should be read in
conjunction with the financial statements and notes included
on Form 10-KSB for the year ended December 31, 1999. Interim
results of operations for the nine-month period ended
September 30, 2000 may not necessarily be indicative of the
results to be expected for the full year.
Basis of Presentation
DTR owns 30% of FMI and 40% of Savory Snacks and the Company
records its proportionate share of the net income or loss of
these entities in the consolidated statements of operations as
loss or income of FMI and Savory Snacks L.L.C. under the
equity method of accounting. The excess of DTR's underlying
equity in net assets of FMI over the carrying value of its
investment ($3,273,866) is being amortized to income over 15
years.
Net Loss per Common Share
Net loss per common share is computed by dividing net loss by
the weighted average number of common and potentially dilutive
securities outstanding during the year. Stock options and
warrants are included in the calculation of diluted net income
per share when the result is dilutive.
Foreign Currency Translation
Effective January 1, 1999, as required by accounting
principles generally accepted in the United States of America,
FMI ceased to account for its fSU operations as highly
inflationary due to the sharp decline in historical inflation
levels. FMI remains cautious concerning the future outlook
for operations in the fSU. The Company and FMI will continue
to monitor the inflation rates in each of the fSU countries in
which it operates to determine if FMI should revert to hyper-
inflationary accounting.
In 2000, the functional currency of FMI's subsidiaries is the
local currency. Accordingly, FMI translates all assets and
liabilities into U.S. dollars at current rates. Revenues,
costs and expenses are translated at weighted-average rates
during the year. Gains and losses resulting from the
translation of the consolidated financial statements are
excluded from the results of operations and are reflected as a
translation adjustment as a separate component of
shareholders' deficit. Gains and losses resulting from
foreign currency transactions are recognized in the
consolidated statement of operations in the period they occur.
For the financial results as of September 30,1999, the amounts
reflected for FMI's operations were prepared under the hyper-
inflationary accounting method which translates the results as
if the U.S. dollar is the local currency. Under this method,
all gains and losses resulting from the translation of the
consolidated financial statements were included in the results
of operations during the period. In December 1999, DTR
determined that the countries ceased to be highly inflationary
effective January 1, 1999 and reflected FMI's annual 1999
results assuming non-hyperinflation. Therefore, DTR will be
amending this 10QSB in the future to restate FMI's quarterly
and nine-month 1999 results, to reflect the results assuming
non-hyperinflation rather than hyper-inflationary accounting.
This change will not affect the results stated during the
three and nine months ended September 30, 2000.
Use of Estimates
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in
the United States of America requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated
financial statements and reported amounts of revenues and
expense during the reporting period. Actual results could
differ from those estimates.
2.Going Concern Considerations
Since August 1998, the countries of the fSU, in which the
subsidiaries of FMI operate, have faced a series of adverse
economic conditions. Uncertainties regarding the political,
legal, tax or regulatory environment, including the potential
for adverse and retroactive changes in any of these areas
could significantly affect the Company. The countries have
seen a significant devaluation of their local currency against
the US dollar, higher interest rates and reduced opportunities
for financing. As a result of these situations, several of
the subsidiaries have suffered significant losses over the
past two years and carry an accumulated deficit at September
30, 2000. DTR is committed to working through FMI's Board of
Directors to address working capital shortages as needed over
the coming year.
The Company has incurred substantial losses in recent years
and, as a result, has an accumulated deficit of $6,175,526 at
September 30, 2000. FMI has also experienced significant
losses, which eliminated DTR's carrying value of its
investment in FMI at December 31, 1999. DTR's portion of
FMI's losses for the nine months ended September 30, 2000 and
1999 were approximately $72,000 and $719,000, respectively. At
September 30, 2000, the Company has not recorded $335,914 of
its proportionate share of losses in FMI because the
investment account has been written down to a zero value. This
amount will offset the Company's pro-rata share of FMI's
income, if any, and amortization of negative goodwill in the
future. The Company's ability to continue as a going concern
depends upon successfully obtaining sufficient financing to
maintain adequate liquidity until such time as DTR sells or
receives a return on its investments. The accompanying
consolidated financial statements have been prepared on a
going concern basis, which assumes continuity of operations
and realization of assets and liabilities in the ordinary
course of business. The consolidated financial statements do
not include any adjustments that might result if the Company
was forced to discontinue its operations.
The Company plans to obtain cash through the collection of
$200,216 from Savory Snacks LLC. Additionally, the Company
plans to receive income by providing management and consulting
services during 2000. Finally, the Company may obtain some
additional equity financing through the exercise of current
stock options or the issuance of additional shares of common
stock. There are no assurances, however, that such financing,
if available will be at a price that will not cause
substantial dilution to the Company's shareholders. If the
Company is not able to generate sufficient cash through its
operating and financing activities in 2000, it will not be
able to pay its debts in a timely manner.
3.Investment in FoodMaster International L.L.C. (FMI)
As of December 31, 1999, DTR owned 30% and API owned 70% of
FMI, respectively. DTR has a right to receive up to 6%
additional ownership interest in FMI by achieving certain
defined rates of returns for API upon API's transfer,
liquidation or sale of their ownership interest in FMI. DTR
records its proportionate share of the net income or loss of
FMI in the statement of operations as loss or income of FMI
joint venture under the equity method of accounting.
From March 1997 to November 1999, DTR managed the dairy
operations of FMI and pursued dairy acquisitions for FMI under
a management contract with FMI. DTR received direct expense
reimbursement, with no profit margin, in accordance with a pre-
approved budget between DTR and FMI. Thus, management fees
increased or decreased as DTR's expenses incurred for
management activities increased or decreased, with no effect
on income because there was no profit margin provided for in
the agreement. Under the terms of the management agreement,
DTR's key managers were required to work only for the
advancement of the FMI business. In November 1999, DTR agreed
to terminate its management agreement in order to pursue other
opportunities and to allow FMI to be self-managed. Some of
DTR's foreign managers were offered positions with FMI while
others were released. During 2000, FMI has contracted DTR to
perform some select financial services. For these services,
DTR recorded management fee revenue of $10,713 and $25,713 for
the three and nine-month periods ended September 30, 2000. The
Company recorded management fee revenue of $271,277 and
$933,358 for the three and nine-month periods ended September
30, 1999 in accordance with its prior management agreement
with FMI.
The Company's pro-rata share of FMI's losses for 1999 was
$1,946,023. However, the Company only recognized $1,518,554
of this 1999 loss, because the Company's net investment in FMI
was reduced to zero. The $427,469 of non-recognized 1999
losses will be recognized and will offset the Company's pro-
rata share of FMI's income, if any, and amortization of
negative goodwill in the future. As of September 30, 2000, the
amount of non-recognized FMI losses was reduced to $335,914.
.
Summarized financial information from the unaudited
consolidated financial statements of FMI accounted for on the
equity method is as follows:
September 30, 2000
(in thousands)
Current assets $ 6,439
Total assets 18,240
Current liabilities 5,846
Non-current liabilities 5,250
Joint-venture equity 7,144
DTR's 30% share of FMI 's equity 2,143
DTR's negative goodwill (amortized over 15 years) (2,492)
DTR's carrying value of FMI's equity 0
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
(in thousands) (in thousands)
<S> <C> <C>
Sales $ 19,015 $ 16,526
Gross profit 3,832 2,882
Net loss (240) (2,398)
DTR's share of FMI's loss before amortization of
DTR's negative goodwill (72) (719)
DTR's share of FMI's loss,
net of amortization of DTR's negative goodwill 92 (556)
</TABLE>
4. Savory Snacks L.L.C. (Savory Snacks)
On April 1, 2000, DTR converted $123,305 of its receivable
from Savory Snacks to a 40% investment in Savory Snacks.
Savory Snacks is a Wisconsin corporation that currently owns
100% of a snack food production company in Talgar, Kazakhstan.
On a consolidated basis, Savory Snacks reported a loss for the
three and nine months ended September 30, 2000 of $42,257 and
$119,787, respectively. Therefore, DTR has recognized its 40%
pro-rata share of this loss as $16,903 and $47,915, in its
Statement of Operations for the three and nine months ended
September 30, 2000, respectively.
5.Net Loss per Common Share
The following table reflects the calculation of basic and
diluted earnings per share.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Numerator:
Net loss $ (102,480) $ (207,250) $ (368,103) $ (551,506)
Denominator:
Weighted average shares-Basic
earnings 930,820 805,820 916,678 805,820
Dilutive effect of stock
options/warrants -- -- -- --
Weighted average shares-
Diluted earnings 930,820 805,820 916,678 805,820
Net loss per share - Basic $ (0.11) $ (0.26) $ (0.40) $ (0.68)
Net loss per share- Diluted$ (0.11) $ (0.26) $ (0.40) $ (0.68)
</TABLE>
An aggregate of zero and 600,000 options to acquire the
Company's common stock for the three months ended September
30, 2000 and 1999, respectively have been excluded from the
calculation of diluted earnings per share as their effect
would be antidilutive. An aggregate of 292,500 and 600,000
options to acquire the Company's common stock for the nine
months ended September 30, 2000 and 1999, respectively, have
been excluded from the calculation of diluted earnings per
share as their effect would be antidilutive.
6. Equity
In connection with a February 1, 2000 exercise of a stock
option to acquire 125,000 shares of common stock, the Company
received $70,000 cash and granted the option holder an $82,500
non-recourse note, bearing interest at 4.87%, for the balance.
As a result of this note, this stock option will be treated as
a variable stock option, which may require the Company to
recognize a non-cash compensation expense in the future. This
note is secured by 90,000 shares owned by the former employee.
For the nine-month period ended September 30, 2000, no
compensation expense was recorded as the fair value of the
Company's common stock was less than the exercise price of this
option.
On January 13, 2000, the Board of Directors agreed to amend
the employment agreement of John Hupp, President. The Board
voted to reduce his current number of stock options from
250,000 to 207,500 in order to reflect the merger of SXD's
assets into DTR, and they offered him the option of a non-
interest bearing loan to purchase these options in the event
that he is terminated without cause. As a result of this
significant change, the original stock option must be revalued
at the current market price on this date. The original option
price was $1.22 per share and the market price on January 13,
2000 was $1.50. Therefore as of September 30, 2000, the
Company has recognized $46,480 as compensation expense for the
vested options related to this transaction.
7. Supplemental Disclosures of Cash Flow Information
Non-cash operating and investing activities:
In September 1998, API began its purchase of an additional 10%
of FMI for $6 million dollars. For the nine months ended
September 30, 1999, API contributed $1.7 million to FMI
resulting in a $308,597 increase in the value of DTR's
investment in FMI in order to recognize the unrealized gain
from the reduction in its ownership interest from 40% to 30%
in FMI. The API capital contribution to FMI also increased
DTR's paid-in-capital by this same amount through September
1999.
In connection with a stock option exercise as discussed in
Note 6, the Company granted the optionee a non-recourse note
for $82,500.
On April 1, 2000, DTR converted $123,305 of its receivable
from Savory Snacks L.L.C. to a 40% investment in Savory Snacks
L.L.C.
Supplemental cash flow information:
For the nine months ended September 30, 2000 1999
Cash paid for:
Interest $ 539 $ 3,028
Taxes $ 3,227 $ --
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
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. (the Company or 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.
From March 1997 to November 1999, DTR managed the dairy
operations of FMI and pursued dairy acquisitions for FMI under a
management contract with FMI. DTR received direct expense
reimbursement, with no profit margin, in accordance with a pre-
approved budget between DTR and FMI. Thus, management fees
increased or decreased as DTR's expenses incurred for management
activities increased or decreased, with no effect on income
because there was no profit margin provided for in the agreement.
Under the terms of the management agreement, DTR's key managers
were required to work only for the advancement of the FMI
business. In November 1999, DTR agreed to terminate its
management agreement in order to pursue other opportunities and
to allow FMI to be self-managed. Some of DTR's foreign managers
were offered positions with FMI while others were released.
Future management arrangements with FMI will be based on a
specific need basis as agreed upon by the FMI Board of Directors.
Revenues
The Company generated total revenues of $11,482 and $28,004
during the three and nine months ended September 30, 2000,
respectively, compared to $272,627 and $986,266 during the three
and nine months ended September 30, 1999, respectively. The 97%
decrease from 1999 revenue levels is the result of the
discontinuance of the sales of x-ray tubes in March 1999 and the
discontinuance of the FMI management fee contract in November
1999.
Sales of x-ray tubes by SXD Inc., DTR's wholly-owned
subsidiary, were $48,900 in the first quarter of 1999. There were
several companies that manufacture and sell x-ray tubes in direct
competition to DTR. The Company did not have a measurable market
share and began phasing this division out of its operations in
January 1999. In accordance with its plan to phase out this
operating division, the Company ended its relationship with its
supplier, Svetlana Rentgen, in March 1999. Therefore, there are
no sales of x-ray tubes after March 1999.
In 1999, management fee income resulted only from expenses
billed to FMI for services. These charges contained no profit
margin and were in accordance with a pre-approved budget between
DTR and FMI. In 2000, there will be no further management fees
charged to FMI by DTR under this old management contract.
However, in 2000 FMI contracted certain financial services from
DTR, and DTR is receiving $2,500 per month through August 2000
and $3,750 per month, thereafter, in accordance with this
agreement. DTR billed $8,750 and $271,277 during the three
months ended September 30, 2000 and 1999, respectively and
$23,750 and $933,358 during the nine months ended September 30,
2000 and 1999, respectively in accordance with its management
agreements with FMI. Management fees declined in 2000 due to the
discontinuance of the old management contract in November 1999,
as discussed above. In the future, FMI may contract additional
management or consulting services from DTR as agreed upon by the
FMI Board of Directors. During the 3rd quarter of 2000, DTR
earned $1,963 from additional consulting services it provided to
a Minnesota-based company. DTR is also evaluating other
management or consulting arrangements in order to generate
additional revenues.
Cost of Sales
The only cost of sales at September 30, 1999 relates to the
cost on x-ray tubes. The cost of $41,450 in the first quarter of
1999 provided a gross profit on x-ray tubes sales of 15.2%.
Although the gross profit has remained consistent over the past
few years, the increase in competition put pressure on the
Company to lower its prices in 1999 to a level that would not be
worth continuing this division. Therefore, the Company did not
renew its sales contracts with its customers after March 1999.
There were no sales and therefore, no cost of sales in the third
quarter of 2000 or 1999.
Selling, general and administrative
Selling, general and administrative expenses for the three
months ended September 30, 2000 and 1999 were $94,767 and
$298,352, respectively. Selling, general and administrative
expenses for the nine months ended September 30, 2000 and 1999
were $347,109 and $989,098, respectively. During the nine months
ended September 30, 2000, DTR recognized $46,480 of non-cash
compensation expense related to the issuance of stock options to
employees. Since DTR discontinued its management of FMI in
November 1999, they incurred fewer costs to manage DTR
operations. However, most of the costs that still remain are no
longer being reimbursed through management fees. Therefore in
2000, DTR is continuing to reduce its overhead and is seeking
opportunities to provide additional management and consulting
services in order to generate cash to cover its operating costs.
The majority of the 1999 costs were offset by the management fee
income of $933,358 for the nine months ended September 30, 1999.
These management fees were charged to FMI as discussed above
under Revenues.
Liquidity and Capital Resources
Operating Activities
DTR used net cash of $265,054 in the first nine months of
2000 compared to receiving cash of $304,273 in the nine months
of 1999. The large increase in cash used is resulting from DTR's
expenses no longer being reimbursed by FMI under a management
contract. DTR is required to use its own cash reserves to pay
the expenses.
Investing Activities
In the nine months of 2000, DTR sold equipment to FMI for
$2,600. The net book value of this equipment and other disposed
or damaged equipment was $7,129. Thus, resulting in a $4,529
loss to DTR. In the first nine months of 1999, DTR sold
equipment to FMI at its net book value of $1,952. In addition,
they purchased $2,743 of equipment during the nine months ended
September 30, 1999.
Financing Activities
On February 1, 2000, an employee exercised his right to
125,000 shares of the Company's common stock. The former
employee paid the Company $70,000 and gave the Company a non-
recourse promissory note, bearing interest at 4.87% per annum,
for the balance owed of $82,500. The principal and interest are
due in five equal installments beginning February 2001 and each
year thereafter. This note is secured by 90,000 shares owned by
the former employee. There were no financing activities during
the nine months ended September 30, 1999.
Adverse Foreign Economic and Currency Conditions
Since August 1998, the countries of the fSU in which the
subsidiaries of FMI operate have faced a series of adverse
economic conditions. Uncertainties regarding the political,
legal, tax or regulatory environment, including the potential for
adverse and retroactive changes in any of these areas could
significantly affect the Company and the carrying value of its
investment in FMI . The countries have experienced a significant
devaluation of their local currency against the US dollar, higher
interest rates and reduced opportunities for financing. DTR is
committed to working through FMI's Board of Directors to address
working capital shortages as needed over the coming year. DTR
expects that further working capital shortages at FMI and its
subsidiaries will be funded through loans from FMI, loans from
third parties or through the sale of additional equity.
FMI is currently seeking to finalize negotiations with third-
party investors to receive up to an additional $2-$4 million in
cash in the form of convertible debt instruments for its
consolidated FoodMaster Kazakhstan subsidiary. DTR believes FMI
has sufficient working capital and liquidity to fund its current
operations through the coming year.
The Company plans to obtain cash through the collection of
its $200,216 receivable with Savory Snacks LLC. Additionally, the
Company plans to receive income by providing management and
consulting services and by selling unused assets during 2000.
Finally, the Company may obtain some additional equity financing
through the exercise of current stock options or the issuance of
additional shares of common stock. There are no assurances,
however, that such financing, if available will be at a price
that will not cause substantial dilution to the Company's
shareholders. If the Company is not able to generate sufficient
cash through its operating and financing activities in 2000, it
will not be able to pay its debts in a timely manner. As of July
15, 2000, the Company's president is working on a deferred salary
basis until further money is received by the Company. As of
October 30, 2000, the president reduced his working hours for the
Company and the Company's financial director is now working on a
deferred salary basis.
On April 1, 2000, DTR converted $123,305 of its receivable
from Savory Snacks to a 40% equity ownership in Savory Snacks.
In November 1997, DTR's Board of Directors authorized
500,000 stock options to be awarded to Messrs Hupp and Sagadiev
over a five-year period as incentive compensation to build the
dairy processing business in the former Soviet Union. At the
same time, the board voted to establish a wholly-owned subsidiary
called SXD, Inc. to which these stock options would not
participate. DTR's minority interest in Phygen, Inc., a coating
technology business, its contractual rights to possible revenue
from the cancer detection technology being developed by Armed,
and the x-ray tube distribution business was transferred to SXD.
Additionally, DTR transferred $800,000 in cash and receivables to
SXD. Since November 1997, DTR's Board sought investment
opportunities for SXD outside of the former Soviet Union in an
effort to maximize shareholder value. Following the termination
of the x-ray tube distribution business in March 1999 and DTR's
needs for continued operations, the Board of Directors voted in
January 2000 to liquidate SXD by transferring all of the assets,
ownership interests, and liabilities back to DTR in complete
redemption of the outstanding common stock. The outstanding
stock options of Messrs. Hupp and Sagadiev were reduced by 17%
following the transfer of the assets back to DTR.
On January 13, 2000, the Board of Directors agreed to amend
the employment agreement of John Hupp, President. The Board
voted to reduce his current number of stock options from 250,000
to 207,500 (in accordance with the 17% reduction stated above),
and to offer him the option of a non-interest bearing loan to
purchase these options in the event that he is terminated without
cause. In addition, they granted him 40,000 new stock options at
a price per share equal to the mean between the bid and ask
prices as of that date. The Board also extended the offer of the
non-interest bearing loan to these options.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to a vote of the shareholders
during the third quarter ended September 30, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following new Exhibits are filed as part of this
Form 10-QSB:
(a) List of Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by
Developed Technology Resource, Inc. during the
quarter ended September 30, 2000.
<PAGE>
EXHIBIT INDEX
The following Exhibits are filed as part of this Form
10-QSB:
No. Exhibit Description
27 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DEVELOPED TECHNOLOGY RESOURCE, INC.
Date: November 20, 2000 By /s/ John P. Hupp
Name: John P. Hupp
Title: President
Date: November 20, 2000 By /s/ LeAnn H. Davis
Name: LeAnn H. Davis, CPA
Title: Chief Financial Officer
(Principal Financial & Accounting Officer)
