-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BncorVLYFxwbzpl1lN4t2fmGQx2uzO8dlDmigLLtRESyVku+tBSeIxKylXaHL0PN hV9jY+/js9+iEF4Pfry6LQ== 0000897101-01-500753.txt : 20020410 0000897101-01-500753.hdr.sgml : 20020410 ACCESSION NUMBER: 0000897101-01-500753 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEVELOPED TECHNOLOGY RESOURCE INC CENTRAL INDEX KEY: 0000890725 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRICAL APPARATUS & EQUIPMENT, WIRING SUPPLIES [5063] IRS NUMBER: 411713474 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-21394 FILM NUMBER: 1787133 BUSINESS ADDRESS: STREET 1: 7300 METRO BLVD SUITE 550 STREET 2: SUITE 550 CITY: EDNA STATE: MN ZIP: 55439 BUSINESS PHONE: 9528200022 MAIL ADDRESS: STREET 1: 7300 METRO BLVD STREET 2: SUITE 550 CITY: EDNA STATE: MN ZIP: 55439 10QSB 1 developed014674_10qsb.txt DEVELOPED TECHNOLOGY RESOURCE, INC. FORM 10-QSB 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, 2001 [ ] 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. 5223 INDUSTRIAL BOULEVARD 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 12, 2001, 1,221,890 shares of the Registrant's Common Stock were outstanding. 1 DEVELOPED TECHNOLOGY RESOURCE, INC. INDEX FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 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 14 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17 SIGNATURES 18 2 ITEM 1. CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS DEVELOPED TECHNOLOGY RESOURCE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
ASSETS SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------ ------------ Current Assets: Cash and cash equivalents $ 5,353 $ 2,855 Receivables: From sale of discontinued operations -- 18,293 FoodMaster International L.L.C. (FMI) -- 187 Other 23,361 10,514 Notes receivable, net of allowance of $849,288 -- -- Prepaid and other current assets 5,047 7,877 ------------ ------------ Total current assets 33,761 39,726 Furniture and Equipment, net 4,363 17,156 Long-lived Assets Held for Disposal 1,887 -- Note Receivable from Sale of Phygen Investment 229,658 -- Investment in Savory Snacks L.L.C. (Savory Snacks) 42,595 54,734 ------------ ------------ $ 312,264 $ 111,616 ============ ============ LIABILITIES AND SHAREHOLDERS' DEFICIT Current Liabilities: Accounts payable $ 58,249 $ 78,819 Accrued compensation 167,064 47,318 Accrued lease commitments 17,572 -- Accrued other 21,753 27,914 Deferred gain 3,052 3,052 ------------ ------------ Total current liabilities 267,690 157,103 Non-current Deferred Gains 239,265 11,890 ------------ ------------ Total liabilities 506,955 168,993 ------------ ------------ Shareholders' Deficit: Common stock 12,219 9,308 Additional paid-in capital 6,802,547 6,508,290 Notes receivable (412,000) (82,500) Accumulated deficit (6,597,457) (6,492,475) ------------ ------------ Total shareholders' deficit (194,691) (57,377) ------------ ------------ Commitments and Contingencies (Notes 2 and 7) $ 312,264 $ 111,616 ============ ============
See accompanying notes to the condensed consolidated financial statements. 3 DEVELOPED TECHNOLOGY RESOURCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ----------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Revenues: Management fees from FMI $ -- $ 10,713 $ -- $ 25,713 Commissions and other income 770 769 2,283 2,291 ------------ ------------ ------------ ------------ 770 11,482 2,283 28,004 ------------ ------------ ------------ ------------ Selling, general and administrative 21,865 91,862 244,487 300,629 Stock based compensation expense (benefit) (259,940) 2,905 (54,163) 46,480 ------------ ------------ ------------ ------------ (238,075) 94,767 190,324 347,109 ------------ ------------ ------------ ------------ Operating Income (Loss) 238,845 (83,285) (188,041) (319,105) Other Income (Expense): Interest income, net 3,778 935 8,447 2,144 Gain on sale of Phygen stock -- -- 85,000 -- Gain on sale of aviation securities -- -- 1,751 -- Equity in loss of Savory Snacks (8,017) (16,903) (12,139) (47,915) Equity in loss of FMI -- -- -- -- ------------ ------------ ------------ ------------ Income (Loss) before Income Taxes 234,606 (99,253) (104,982) (364,876) Income Taxes -- 3,227 -- 3,227 ------------ ------------ ------------ ------------ Net Income (Loss) $ 234,606 $ (102,480) $ (104,982) $ (368,103) ============ ============ ============ ============ Net Income (Loss) per Common Share: Basic $ 0.19 $ (0.11) $ (0.09) $ (0.40) ============ ============ ============ ============ Diluted $ 0.19 $ (0.11) $ (0.09) $ (0.40) ============ ============ ============ ============ Weighted Average Shares Outstanding: Basic 1,221,890 930,820 1,177,717 916,678 ============ ============ ============ ============ Diluted 1,221,947 930,820 1,177,717 916,678 ============ ============ ============ ============
See accompanying notes to the condensed consolidated financial statements. 4 DEVELOPED TECHNOLOGY RESOURCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (Unaudited)
2001 2000 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (104,982) $ (368,103) Adjustments to Reconcile Net Loss to Cash Used by Operating Activities: Depreciation 5,067 8,664 Stock-based compensation expense (benefit) (54,163) 46,480 Gain on stock redemption (1,751) -- Loss on disposal of furniture and equipment 4,394 4,529 Equity in loss of Savory Snacks 12,139 47,915 Changes in Operating Assets and Liabilities: Receivables (12,847) 1,621 Receivable from FMI -- (9,858) Receivable from Savory Snacks 187 -- Prepaid and other current assets 2,830 12,655 Accounts payable and accrued liabilities 110,587 (6,666) Deferred gains (2,283) (2,291) ------------ ------------ Net cash used by operating activities (40,822) (265,054) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of furniture and equipment 1,445 2,600 Purchases of furniture and equipment -- (186) ------------ ------------ Net cash provided by investing activities 1,445 2,414 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 41,875 70,000 ------------ ------------ Net cash provided by financing activities 41,875 70,000 ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,498 (192,640) CASH AND CASH EQUIVALENTS, Beginning of period 2,855 193,319 ------------ ------------ CASH AND CASH EQUIVALENTS, End of period $ 5,353 $ 679 ============ ============
See accompanying notes to the condensed consolidated financial statements. 5 DEVELOPED TECHNOLOGY RESOURCE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Developed Technology Resource, Inc. (DTR or the Company) has investments in food processing operations in various countries of the former Soviet Union (fSU). These investments are owned indirectly through FoodMaster International L.L.C. (FMI), DTR's joint venture with Agribusiness Partners International L.P. (API), and through Savory Snacks L.L.C., its joint venture with a private investor. 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. As of January 2001, the Company no longer is actively engaged in operating business activities. The remaining assets of DTR are its 30% ownership in FMI, its 40% ownership in Savory Snacks, a fully reserved note receivable due from Savory Snacks, and a fully reserved note receivable related to the sale of its Phygen ownership. Additionally, the Company is expecting to receive additional cash from its notes receivable related to the exercise of employee stock options. The Company has until January 2002 to either engage in some renewed business activities or to change its status to an investment company. The Company's Board of Directors is currently contemplating its options. 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 generally accepted accounting principles 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, 2000. Interim results of operations for the nine-month period ended September 30, 2001 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. The Company records its proportionate share of the net income or loss in the statements of operations as equity in income or loss of FMI or Savory Snacks under the equity method of accounting. Net Income (Loss) per Common Share Net income (loss) per common share is computed by dividing net income or 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, using the treasury stock method, when the result is dilutive. 6 Foreign Currency Translation 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. 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. 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. New Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations," and SFAS No. 142 "Goodwill and Other Intangible Assets," which change the accounting for business combinations and goodwill. SFAS No. 141 requires that the purchase method of accounting be used for business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, will therefore cease upon adoption of the Statement, which for the Company will be January 1, 2002. The Company is currently evaluating the impact of SFAS No. 141 and SFAS No. 142 on its financial statements. In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes both SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and APB Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," it retains the fundamental provisions of those Statements. SFAS No. 144 becomes effective for fiscal years beginning after December 15, 2001. The Company is currently evaluating the impact of SFAS No. 144 on its financial statements. 2. GOING CONCERN CONSIDERATIONS DTR has incurred substantial losses in recent years and, as a result, has an accumulated deficit and working capital deficit of $6,597,457 and $233,929, respectively, at September 30, 2001. As of September 30, 2001, the Company has not recorded $162,821 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 future pro-rata share of FMI's income, if any. The Company's ability to continue as a going concern depends upon successfully obtaining sufficient financing to maintain adequate liquidity 7 until such time as DTR sells or receives a return on its investments. The accompanying condensed 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 condensed consolidated financial statements do not include any adjustments that might result if the Company was forced to discontinue its operations. The Company believes that the recent exercise of employee stock options (see Note 6) and the sale of its Phygen Investment (see Note 8) will provide enough cash to sustain it until a future agreement is reached for the strategic direction of the Company. If the Company is not able to generate sufficient cash through its operating and financing activities in 2001, it will not be able to pay its debts in a timely manner. 3. INVESTMENT IN FOODMASTER INTERNATIONAL L.L.C. (FMI) On March 3, 1997, DTR and API established the FMI joint venture to acquire and operate dairy processing facilities in the fSU. As of September 30, 2001 and 2000, DTR owned 30% and API owned 70% of FMI, respectively. DTR records its proportionate share of the net income or loss of FMI in the statements of operations as equity in income or loss of FMI under the equity method of accounting. During 2000, FMI contracted DTR to perform some select financial services. The Company recorded management fee revenue of $10,713 and $25,713 for the three and nine months ended September 30, 2000, respectively, in accordance with its agreement with FMI. The Company's pro-rata share of FMI's cumulated losses for 1999 and 2000 was $2,249,894. However, the Company only recognized $1,736,812 of these losses through December 2000, because the Company's net investment in FMI was reduced to zero. The $513,082 of non-recognized losses will be recognized and is offset the Company's future pro-rata share of FMI's income, if any. As of September 30, 2001, the amount of unrecognized FMI losses was reduced to $162,821 by the Company's proportionate share of FMI's net income for the nine months of 2001 which aggregated $350,261. Summarized financial information from the unaudited consolidated financial statements of FMI accounted for on the equity method is as follows: September 30, 2001 ------------------ (in thousands) Current assets $ 8,658 Total assets 21,158 Current liabilities 4,650 Non-current liabilities 9,136 Joint-venture equity 7,372 DTR's 30% share of FMI's equity 2,211 DTR's carrying value of FMI's equity 0 8 Nine Months Ended September 30, 2001 2000 -------------- -------------- (in thousands) (in thousands) Sales $ 24,053 $ 19,015 Gross profit 5,899 3,832 Net income (loss) 622 (240) DTR's share of FMI's income (loss) 350 92 4. INVESTMENT IN SAVORY SNACKS L.L.C. (SAVORY SNACKS) In April 2000, DTR agreed to convert $123,305 of its receivable from Savory Snacks to a 40% ownership interest in Savory Snacks. This Wisconsin-based company has a 100% ownership interest in a snack food production company in Talgar, Kazakhstan. DTR also converted the remaining $200,000 receivable to a convertible note receivable bearing interest at 12% per annum. Due to a lack of working capital in the subsidiary, there is no guarantee when and if the party will be able to repay the note. Therefore, the Company fully reserved this $200,000 receivable in December 2000 and will not recognize any interest income until received. The Company's pro-rata share of Savory Snacks losses for the nine months ended September 30, 2001 and 2000 was $12,139 and $47,915, respectively. Summarized financial information from the unaudited consolidated financial statements of Savory Snacks accounted for on the equity method is as follows: September 30, 2001 ------------------ (in thousands) Current assets $ 136 Total assets 561 Current liabilities 967 Non-current liabilities 332 Joint-venture deficit (738) DTR's share of Savory Snacks' equity 43 Nine Months Ended September 30, 2001 2000 -------------- -------------- (in thousands) (in thousands) Sales $ 221 $ 165 Gross profit 67 (24) Net loss (30) (187) DTR's 40% share of Savory Snacks' loss (beginning April 1, 2000) (12) (48) 5. LONG-LIVED ASSETS HELD FOR DISPOSAL The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an investment may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. 9 In the first quarter of 2001, the Company reclassified assets that were no longer being used to long-lived assets held for disposal. The assets had a cost $56,649 and a net book value at September 30, 2001 of $1,887. The Company believes that this is a reasonable value of the current fair market value for these assets. 6. STOCK TRANSACTIONS 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 annual installments beginning February 2001. This note is secured by 90,000 shares exercised by the former employee. On December 18, 2000, the Board of Directors agreed to amend the employment agreement of the Company's chief financial officer. The Board canceled her existing 15,000 options which were exercisable at an average price of $1.83 per share and granted her 30,000 new stock options at the market price of $.625 per share with the option of a non-recourse loan bearing interest at 5% per annum to purchase these options at any time upon their vesting on March 31, 2001. In April 2001, the Company's chief financial officer and current president exercised her right to these 30,000 shares of the Company's common stock, and gave the Company a non-recourse promissory note for $18,750. This note bears interest at the rate of 5% per annum, is due in four equal installments beginning April 6, 2003, and is secured by all the shares exercised. On February 2, 2001, the Company's former president exercised his right to 247,500 shares of the Company's common stock, and gave the Company a non-recourse promissory note for $310,750. This note bears interest at the rate of 5% per annum, is due in four equal annual installments beginning December 31, 2003, and is secured by all the shares exercised. Each of the above stock transactions require a new measurement date each quarter, resulting in variable accounting for each award. So long as the cumulative compensation expense for each award is greater than zero, the Company will record a benefit from reduced stock compensation expense when the Company's stock price decreases. The Company recorded stock-based compensation expense (benefit) of $(54,163) and $46,480 for the nine months ended September 30, 2001 and 2000, respectively and $(259,940) and $2,905 for the three months ended September 30, 2001 and 2000, respectively. Additionally in April 2001, two members of the Company's Board of Directors exercised a total of 30,000 options which provided the Company with $41,875 cash. 7. COMMITMENTS & CONTINGENCIES Leasehold Abandonment The Company leased its primary office facilities under an operating lease that expires on April 30, 2002. In order to reduce costs, the Company abandoned its leased premises in January 2001 and moved its remaining assets to an office that it rents on a month to month basis for $100 per month. The Company accrued, as of September 30, 2001, $17,572 which represents all future amounts due under the old lease. According to the lease, these amounts are payable unless the space can be subleased in the future. 10 The following schedule sets forth the future minimum rental payments required under the operating lease from July 1, 2001: Year Ending Operating December 31, Leases ------------ --------- 2001 10,543 2002 7,029 --------- $ 17,572 Upon the abandonment of its leasehold premises, the Company wrote off the remaining net book value of its leasehold improvements of $1,079. 8. SALE OF BUSINESS In January 2001, DTR sold its 10% ownership (96,818 shares) in Phygen, Inc. for $314,658. DTR received $85,000 in cash plus a $229,658 note for the remainder of the balance. This note bears interest at 6% per annum and is due on January 10, 2004. This note is secured by 70,664 shares in Phygen. This investment was on DTR's books at a zero value. Therefore, the Company recognized the entire $85,000 of cash it received as gain on sale of Phygen. Due to collectibility concerns, DTR has deferred the remaining $228,658 gain and recognition of interest income until the receipt of future cash. 9. SPIN-OFF In April 2001, DTR formed a wholly owned subsidiary, DTR-Med Pharma Corp. DTR contributed its right to receive royalty interest from Armed Corp. to this subsidiary. This royalty interest relates to a medical technology which is designed to permit the measurement, through a pressure sensitive system, of the elasticity and hardness of soft tissue. Through digitization, a clinician using this system is able to generate an image showing the size and location of nodules in human tissue, as an aid to cancer detection. Pursuant to a third-party appraisal, DTR-Med Pharma Corp.'s this right to future royalty interest was determined to have a fair market value of approximately $107,000. On April 26, 2001, DTR declared a stock dividend, payable to the shareholders of record on May 7, 2001, for each of its shareholders of record on that date. The dividend consisted of one share of the common stock of its wholly owned subsidiary, DTR-Med Pharma Corp., for each share of DTR held at the record date. The payment date for the dividend was May 15, 2001. Additionally, DTR and DTR-Med Pharma Corp. entered into a Stock Exchange Agreement with the shareholders of Pro-Pharmaceuticals, Inc., based in Newton, Massachusetts, whereby DTR-Med Pharma Corp. issued 12,354,670 shares of its common stock in exchange for all of the outstanding shares of common stock of Pro-Pharmaceuticals, Inc. The closing of the transaction with the shareholders of Pro-Pharmaceuticals, Inc. occurred on May 15, 2001. Following the closing, DTR-Med Pharma Corp. has approximately 13,576,560 shares of common stock outstanding, of which 1,221,890 are held by DTR's shareholders as a result of the stock dividend. Pro-Pharmaceuticals, Inc. is attempting to develop an improved drug delivery system that reduces the toxicity of drugs currently used for the treatment of cancer, such as those drugs used in chemotherapy. 11 Since DTR's original basis in this right to receive royalty interest was written down to zero in past years, there is no financial statement impact from the creation and spin-off of this new subsidiary. 10. SALE OF AVIATION SECURITIES 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 Gate Technologies, Inc., 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 1996 and a note receivable totaling $765,000 payable over 30 months. Due to the inherent risks associated with operating in the fSU, including credit risk, the gain on this sale was deferred and will be recognized as payments are received. As of December 31, 2000, the total still due under the note was $480,000 along with a deferred gain of $461,707. Due to the buyer's delinquency in payment and the limited success of the business that was sold, management reduced the receivable by the $461,707 of the related deferred gain, leaving a balance of $18,293 recorded on its balance sheet at December 31, 2000. The former employee had pledged 16,430 of his shares of DTR's common stock as collateral for the loan. In December 2000, the former employee was in default on all payments and DTR began foreclosure proceedings on the pledged shares. In April 2001, DTR cancelled these shares at a value of $20,044. The $1,751 difference between the stock value and the $18,293 receivable was recognized as gain from sale of aviation securities in the Company's statements of operations for the nine months ended September 30, 2001. 11. INCOME (LOSS) PER COMMON SHARE The following table reflects the calculation of basic and diluted income (loss) per common share:
Three months ended Nine months ended September 30, September 30, ---------------------------- ----------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Numerator: ---------- Net income (loss) $ 234,606 $ (102,480) $ (104,982) $ (368,103) ============ ============ ============ ============ Denominator: ------------ Weighted average shares-Basic earnings 1,221,890 930,820 1,177,717 916,678 Dilutive effect of stock options/warrants 57 -- -- -- ------------ ------------ ------------ ------------ Weighted average shares-Diluted earnings 1,221,947 930,820 1,177,717 916,678 ============ ============ ============ ============ Net income (loss) per common share - Basic $ 0.19 $ (0.11) $ (0.09) $ (0.40) ============ ============ ============ ============ Net income (loss) per common share - Diluted $ 0.19 $ (0.11) $ (0.09) $ (0.40) ============ ============ ============ ============
Options to acquire 5,000 and 292,500 shares of common stock have not been included in the computation of diluted earnings per common share for the nine months ended September 30, 2001 and 2000, respectively, as their effect would be antidilutive. There were no potentially dilutive securities included in the computation of diluted earnings per common share for the three months ended September 30, 2000. 12 12. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Non-cash operating and investing activities: In connection with the stock option exercises discussed in Note 6, the Company received non-recourse notes from the optionees totaling $329,500 and $82,500 in the first nine months of 2001 and 2000, respectively. In April 2000, DTR converted $123,305 of its receivable from Savory Snacks to a 40% ownership interest in Savory Snacks. In addition, they converted the remaining $200,000 receivable to a convertible note receivable bearing interest at 12% per annum. Nine Months Ended September 30, Supplemental cash flow information: 2001 2000 ----------------------------------- ---------- ---------- Cash paid for: Interest $ 5,395 $ 539 Taxes $ -- $ 3,227 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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. In April 2001, DTR formed a wholly owned subsidiary, DTR-Med Pharma Corp. DTR contributed its right to receive royalty interest from Armed Corp. to this subsidiary. Pursuant to a third-party appraisal, DTR-Med Pharma Corp.'s this right to future royalty interest was determined to have a fair market value of approximately $107,000. On April 26, 2001, DTR declared a stock dividend, payable to the shareholders of record on May 7, 2001, for each of its shareholders of record on that date. The dividend consisted of one share of the common stock of its wholly owned subsidiary, DTR-Med Pharma Corp., for each share of DTR held at the record date. The payment date for the dividend was May 15, 2001. Additionally, DTR and DTR-Med Pharma Corp. entered into a Stock Exchange Agreement with the shareholders of Pro-Pharmaceuticals, Inc., based in Newton, Massachusetts, whereby DTR-Med Pharma Corp. issued 12,354,670 shares of its common stock in exchange for all of the outstanding shares of common stock of Pro-Pharmaceuticals, Inc. The closing of the transaction with the shareholders of Pro-Pharmaceuticals, Inc. occurred on May 15, 2001. Since DTR's original basis in this right to receive royalty interest was written down to zero in past years, there is no financial statement impact from the creation and spin-off of this new subsidiary. RESULTS OF OPERATIONS REVENUES The Company generated total revenues of $2,283 and $28,004 during the nine months ended September 30, 2001 and 2000, respectively. This 92% decrease from 2000 revenue levels is the result of the discontinuance of any management contractual services performed by DTR for FMI. During 2000, FMI contracted DTR to perform some select financial services. The Company recorded management fee revenue of $8,750 and $23,750 for the three and nine months ended September 30, 2000, respectively, in accordance with its agreement with FMI. During the 3rd quarter of 2000, DTR earned $1,963 from additional consulting services it provided to a Minnesota-based company. In January 2001, DTR's chief financial officer began working full time as a direct employee of FMI and is working for DTR only on a part time contractual basis. Therefore, there are no management fee revenues in 2001 as there were in 2000. 14 SELLING, GENERAL AND ADMINISTRATIVE In order to reduce costs, the Company abandoned its leased premises in January 2001 and moved its remaining assets to an office space that it rents on a month to month basis for $100 per month. In addition, the Board and the Company's president agreed in January 2001 that he would resign as President, but remain a director for the Company. The Company's chief financial officer was then elected president and will continue to work on a part time basis in both positions and not require any cash payment until the Company is able to do so. With no full time employees and minimal operating costs, the Company expects to continue until it sells off its investment interests. Selling, general and administrative expenses for the nine months ended September 30, 2001 and 2000 were $244,487 and $300,629, respectively. During these respective periods, DTR also recognized $(54,163) and $46,480 of non-cash stock based compensation expense (benefit) related to the issuance of stock options and loans on exercised shares to employees. In addition during the nine months ended September 30, 2001, the Company recognized $116,338 of compensation and employment tax expense related to the severance package for its former president, $17,572 of future contingent rent expense and $1,079 of loss on assets related to the abandonment of its former leasehold premises, and $15,000 of legal expenses related to the formation and spin-off of DTR's subsidiary, DTR-Med Pharma Corp. The remaining $94,398 of 2001 expenses relate to normal operating costs. Selling, general and administrative expenses for the three months ended September 30, 2001 and 2000 were $21,865 and $91,862, respectively. During the third quarter of 2001, DTR reduced its non-cash stock based compensation expense by $259,940 due to the lower market value of its common stock as of September 30, 2001. During the third quarter of 2000, DTR increased its non-cash stock based compensation expense by $2,905 due to the higher market value of its common stock. This continual modification of non-cash stock based compensation expense is in accordance with the accounting standards for variable stock compensation plans. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES DTR used cash of $40,822 and $265,054 during the nine months ended September 30, 2001 and 2000, respectively. This decrease in cash used was mainly caused by the collection of $85,000 on the sale of Phygen, Inc. in January 2001 and an overall decrease in payments for operating expenses in 2001. INVESTING ACTIVITIES In the nine months ended September 30, 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. DTR sold and disposed of various pieces of equipment in the third quarter of 2001 for $1,445. 15 FINANCING ACTIVITIES In April 2001, two members of the Company's Board of Directors exercised a total of 30,000 options which provided the Company with $41,875 cash. In February 2000, options to purchase 125,000 shares of DTR's Common Stock were exercised by a former employee at a purchase price of $1.22 per share. The Company received $70,000 in cash and a non-recourse promissory note for $82,500. This note is secured by a portion of the shares exercised by the former employee. LIQUIDITY As of January 2001, the Company no longer is actively engaged in operating business activities. In order to reduce costs, the Company abandoned its leased premises in January 2001 and moved its remaining assets to an office space that it rents on a month to month basis for $100 per month. In addition, the Board and the Company's president agreed in January 2001 that he would resign as president, but remain a director for the Company. The Company's chief financial officer was then elected president and will continue to work on a part time basis in both positions and not require any cash payment until the Company is able to do so. The Company plans to obtain additional cash from the payments on loans due from former employees upon the exercise of their stock options. 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 annual installments beginning February 2001. In January 2001, the Company's former president exercised 247,500 options and gave the Company a non-recourse note for $310,750. This note bears interest at the rate of 5% per annum, and is due in four equal annual installments beginning December 31, 2003. In April 2001, the Company's chief financial officer and current president exercised 30,000 options and gave the Company a non-recourse note for $18,750. This note bears interest at the rate of 5% per annum, and is due in four equal installments beginning April 6, 2003. The remaining assets of DTR are its 30% ownership in FMI, its 40% ownership in Savory Snacks, a fully reserved note receivable due from Savory Snacks, and a fully reserved note receivable related to the sale of its Phygen ownership. Additionally, the Company is expecting to receive additional cash from its notes receivable related to the exercise of employee stock options. The Company has until January 2002 to either engage in some renewed business activities or to change its status to an investment company. The Company's Board of Directors is currently contemplating its options. With no full time employees and minimal operating costs, the Company expects to continue until it sells off its investment interests or until a new decision is reached for the direction of the Company. 16 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the shareholders during the quarterly period ended September 30, 2001. 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 NONE (b) Reports on Form 8-K There were no reports on Form 8-K filed by Developed Technology Resource, Inc. during the quarterly period ended September 30, 2001. 17 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 12, 2001 By /s/ LeAnn C. Hitchcock ---------------------------------------- Name: LeAnn C. Hitchcock Title: President & Chief Financial Officer (Principal Financial & Accounting Officer) Date: November 12, 2001 By /s/ John P. Hupp ---------------------------------------- Name: John P. Hupp Title: Director Date: November 12, 2001 By /s/ Peter L. Hauser ---------------------------------------- Name: Peter L. Hauser Title: Director Date: November 12, 2001 By /s/ Roger W. Schnobrich ---------------------------------------- Name: Roger W. Schnobrich Title: Director 18 -----END PRIVACY-ENHANCED MESSAGE-----