SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from:______________ to _________________
Commission File No. 33-21842-C
NORTECH FOREST TECHNOLOGIES, INC.
(Exact Name of Small Business Issuer as Specified in Charter)
Delaware 41-1818075
(State or Other Jurisdiction of (I.R.S. Employer Identi-
Incorporation or Organization) fication Number)
7600 West 27th Street, No. B11
St. Louis Park, Minnesota 55426
(Address of Principal Executive Offices, Including Zip Code)
(612) 922-2520
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports; and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of April 26, 1996, the Registrant had 4,261,500 shares of $.01 par value
Common Stock outstanding.
Transitional Small Business Disclosure Format: Yes No X
<PAGE>
PART I
Item 1. Financial Statements Required by Form 10-QSB.
Nortech Forest Technologies, Inc., a Delaware corporation (the "Registrant" or
"Company") files herewith balance sheets as of December 31, 1995 and March 31,
1996 and the related statements of operations and cash flows for the three
months ended March 31, 1996 and 1995, respectively. In the opinion of management
of the Registrant, the financial statements reflect all adjustments, all of
which are normal recurring adjustments necessary to fairly present the financial
condition of the Registrant for the interim period presented. The financial
statements included in this report on Form 10-QSB should be read in conjunction
with the audited financial statements of the Registrant and the notes thereto
included in the Annual Report filed on Form 10-KSB for the year ended December
31, 1995.
At the Company's 1995 Annual Meeting of Stockholders held on June 21, 1995, the
Company's stockholders approved, among other items, a proposal to change the
corporate domicile of the Company from Colorado to Delaware. One result of this
change in corporate domicile was that the Company's capital structure changed
from no par to $.01 par value preferred and common stock. All references in the
accompanying financial statements have been restated to reflect this change in
par value.
In October 1995, the Company merged the business and operations of its sole
wholly owned subsidiary, Nortech Forest Products (NFP) with and into Nortech
Forest Technologies, Inc. This merger was effected to simplify administrative,
record-keeping and accounting matters. Management of the Company believes
various operating and administrative efficiencies should be derived from this
corporate consolidation.
At the Company's 1996 Annual Meeting of Stockholders held on April 30, 1996, the
Company's stockholders approved, among other proposals, a proposal to effect a
one-for-four reverse stock split of the Company's issued and outstanding Common
Stock and an amendment to the Company's Certificate of Incorporation to reduce
the post-split authorized shares of Common Stock from 15,000,000 to 3,750,000
and the Preferred Stock from 2,000,000 to 500,000.
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
BALANCE SHEETS
March 31, December 31,
1996 1995 (1)
(Unaudited)
ASSETS
Current assets
Cash $56,445 $30,919
Accounts receivable 21,376 3,104
Inventories
Finished goods 20,147 16,711
Raw materials 4,694 9,014
Work in progress 5,014 -
Prepaid expenses 11,348 6,500
--------- ---------
Total current assets 121,024 66,248
--------- ---------
Long-term assets:
Equipment 78,615 78,155
Accumulated depreciation (27,072) (23,513)
--------- ---------
51,543 54,642
--------- ---------
Other assets
Organizational costs, net of
accumulated amortization of
$368 and $460 during
1996 and 1995, respectively 135 168
Patent costs, net of accumulated
amortization of $874 and $700
during 1996 and 1995, respectively 48,291 48,358
Other assets 3,250 3,250
--------- ---------
51,676 51,776
--------- ---------
$224,243 $172,666
========= =========
(1) The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include the
information and notes required by generally accepted accounting
principles for complete financial statements.
See Notes to Financial Statements
<PAGE>
March 31, December 31,
1996 1995
(Unaudited)
LIABILITIES AND STOCKHOLDERS
EQUITY
Current liabilities:
Bank line-of-credit $ 72,000 $ 97,000
Accounts payable - trade 144,271 160,968
Accounts payable - related party 14,001 14,001
Notes payable - related party 291,000 106,000
Note payable - other 56,000 2,500
Accrued expenses 17,504 20,909
Current portion of long-term debt 2,419 3,228
--------- ---------
Total current liabilities 591,195 427,106
--------- ---------
Long-term liabilities:
Long-term debt 3,947 3,947
--------- ---------
Stockholders' equity:
Preferred Stock, par value $.01
per share; 2,000,000 shares
authorized, none issued - -
Common Stock, par value $.01 per
share; 15,000,000 shares
authorized; issued and outstanding,
4,261,500 shares at March 31, 1996
and 4,261,500 shares at December 31,
1995 42,615 42,615
Paid in capital 950,565 950,565
Accumulated deficit (1,364,079) (1,251,567)
--------- ---------
Total stockholders' equity (370,899) 258,387
--------- ---------
$ 224,243 $ 172,666
========== ==========
See Notes to Financial Statements
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
1996 1995
Sales $34,283 $27,728
Cost of sales 13,086 8,965
----------- -----------
Gross profit 21,197 18,763
----------- ----------
Operating expenses:
Administrative 67,317 131.430
Sales and marketing 36,318 7,271
Research and development 21,876 4,050
---------- ----------
125,511 142,751
---------- ----------
Net operating loss (104,314) (123,988)
Other income (expense) (8,198) 964
---------- ----------
Net loss $ (112,512) $ (123,024)
========= =========
Net loss per common share $(.03) (.03)
============ ===========
Weighted average number
of common equivalent
shares outstanding 4,261,500 4,239,867
========= =========
See Notes to Financial Statements
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash
Three months ended March 31,
1996 1995
Cash flows from operating activities:
Net loss $ (112,512) $ (123,024)
Adjustments to reconcile net loss to
net cash flows from operating activities
Issuance of stock for services - -
Amortization 207 31
Depreciation 3,559 2,054
Accounts receivable (18,272) (27,386)
Inventories (4,130) (14,436)
Accounts payable (16,697) 1,227
Accrued expenses (3,405) 2,893
Other (4,848) 887
--------- ---------
Net cash flows from operating
activities (156,098) (157,754)
--------- ---------
Cash flows from investing activities:
Purchase of long-term assets (460) (5,314)
Patent costs (107) 1,624)
Receivable - related party -0- 3,109
--------- --------
Net cash flows from investing
activities (567) (3,829)
--------- --------
Cash flows from financing activities:
Bank line-of-credit (25,000) -
Sale of stock for cash -0- 25,000
Proceeds from long-term debt -0- 9,700
Payment of long-term debt (809) (100)
Note payable - related party 185,000 1,000
Note payable - other 25,000 -
-------- --------
Net cash flows from financing
activities 184,191 35,600
-------- --------
Net increase (decrease) in cash 27,526 (125,983)
Cash, beginning of period 30,919 140,944
-------- -------
Cash, end of period $ 58,445 $ 14,961
======== =========
See Notes to Financial Statements
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Three Months Ended March 31, 1996 (Unaudited)
1. Condensed Financial Statements
The financial statements included herein have been prepared by Nortech
Forest Technologies, Inc., a Delaware corporation, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted as allowed by such rules and
regulations. Nortech Forest Technologies, Inc. believes that the
disclosures are adequate to make the information presented not misleading.
It is suggested that these financial statements be read in conjunction with
the December 31, 1995 audited financial statements and the accompanying
notes thereto. Although management believes the procedures followed in
preparing these financial statements are reasonable, the accuracy of the
amounts are in some respects dependent upon the facts that will exist and
procedures that will be accomplished by Nortech Forest Technologies, Inc.
later in the year.
Management of Nortech Forest Technologies, Inc. believes that the
accompanying unaudited condensed financial statements contain all
adjustments (including normal recurring adjustments) necessary to present
fairly the operations and cash flows for the periods presented.
2. Organization and History; Predecessor Transactions
At the Company's 1996 Annual Meeting of Stockholders held on April 30,
1996, the Company's stockholders approved, among other proposals, a
proposal to effect a one-for-four reverse stock split of the Company's
issued and outstanding Common Stock and an amendment to the Company's
Certificate of Incorporation to reduce the post-split authorized shares of
Common Stock from 15,000,000 to 3,750,000 and the Preferred Stock from
2,000,000 to 500,000. The reverse split has not become effective yet, and
therefore the financial statements included herewith do not reflect the
one-for-four stock split.
In October 1995, the Company merged the business and operations of its
former wholly owned subsidiary, Nortech Forest Products (NFP) with and into
Nortech Forest Technologies, Inc. This merger was effected to simplify
administration, record-keeping and accounting matters. Management of the
Company believes various operating and administrative efficiencies should
result from this corporate consolidation.
At the Company's 1995 Annual Meeting of Stockholders held on June 21, 1995,
the Company's stockholders approved, among other items, a proposal to
change the corporate domicile of the Company from Colorado to Delaware. One
result of this change in corporate domicile was that the Company's capital
structure changed from no par to $.01 par value preferred and common stock.
On June 11, 1993, the Company (then known as Emerald Eagle Corp.) acquired
all of the issued and outstanding shares of NFP in exchange for 2,800,000
post-split shares of the Company's Common Stock. The Company was originally
organized under the laws of Colorado in January 1986 under the name Service
Finders, Inc. The name of the Company was changed to Emerald Eagle Corp. in
September 1987 and its business was changed to that of a blank-check
company seeking business opportunities. Immediately following the tax-free
reorganization between the Company and NFP, approximately 77.8% of the
Company's Common Stock was held by the former shareholders of NFP.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For financial statement purposes, the acquisition of NFP was accounted for
as a "reverse acquisition," and thus, treated as if NFP had acquired the
Company. As a result, the financial statements of the Company have
presented the operations of NFP from inception and include the Company's
operations from the date of the consummation of such tax-free
reorganization. Historical combined pro forma financial for the `Company
and for NFP for the periods prior to the reorganization are not provided by
the Company because such information is not material to an understanding of
the current or future operations of the Company. The historical results of
operations of the Company include transactions and activities that are not
expected to recur subsequent to such reorganization.
3. Notes Payable - Bank
Effective March 10, 1995, the Company secured a $100,000 revolving line of
credit with Norwest Bank, Minnesota N.A. This line of credit is secured by
the Company's accounts receivable, inventories and substantially all assets
of the Company. At March 31, 1996, there was $72,000 outstanding under this
line of credit, and the entire balance is due in full by May 31, 1996. This
line of credit accrues interest at 5% over the prime rate and interest is
payable monthly. The note is also personally guaranteed by Robert H.
Gilbertson, the Chairman of the Board of the Company.
On March 10, 1995, the Company entered into an agreement with Norwest Bank,
Minnesota N.A. for a $9,700 equipment note. The note establishes principal
payments due in 35 monthly installments of $269 from April 1, 1995 through
February 1, 1998. A final payment is due on March 1, 1998. Interest is
payable monthly under this obligation at the prime rate, plus 1.5%.
4. Related Party Transactions
Historically, the Company made certain advances to Nordic National Group,
Inc. ("Nordic"). Nordic is controlled by the Chairman of the Board of the
Company. Effective June 30, 1995, Nordic was no longer indebted to the
Company.
Effective June 30, 1995, the Company acquired from Nordic all of the assets
and proprietary rights with respect to three product formulas and product
lines for $14,001.
On March 10, 1995, the Chairman of the Board of the Company advanced the
Company $1,000. This obligation is unsecured, is due on demand and bears
interest at the prime rate, plus 2%.
On September 25, 1995, a director of the Company loaned the Company
$25,000. This obligation is unsecured, is due on demand and bears interest
at 12% per annum. In December 1995, this obligation was converted into a
new 12% convertible unsecured promissory note.
On December 11, 1995, the Chairman of the Board loaned the Company $35,000
on a 12% unsecured convertible subordinated promissory note.
On December 11, 1995, a former director of the Company loaned the Company
$35,000 on a 12% unsecured convertible subordinated promissory note.
On December 14, 1995, a director of the Company loaned the Company $15,000.
This obligation is unsecured, is due on demand and bears interest at 12%
per annum. In December 1995, this obligation was converted into a new 12%
convertible unsecured promissory note.
On February 2, 1996, a director loaned the Company $150,000 pursuant to a
12% Promissory Note, with the principal due on the earlier of (I) the
initial closing date of the Company's 1996 private placement; or (ii)
September 30, 1996. Interest accrues at a rate of 12% per annum and is
payable monthly. In connection with this loan, the Company issued the
director five-year warrants to purchase 15,000 shares of common Stock at an
exercise price of $1.00 per share, and granted the director a security
interest in the Company's assets. Also, in connection therewith, the
Company's Chairman agreed to pledge his shares of the Company's Common
Stock as collateral in the event the Company fails to pay the director on
or before September 30, 1996.
<PAGE>
5. Equity
On June 20, 1995, the Company issued a Notice of Redemption to redeem all
outstanding warrants to acquire 326,000 shares of the Company's Common
Stock. On August 4, 1995, the Company redeemed warrants to acquire 307,000
shares of Common Stock at a cost to the Company of $307 or $.001 per share.
Prior to such redemption, five warrantholders elected to exercise their
warrants to purchase 19,000 shares of the Company's Common Stock for gross
proceeds to the Company of $14,250.
On December 11, 1995, the Company closed on an unsecured debt financing
with six accredited investors, including three then-current directors of
the Company. The Company issued a total of $190,000 of twelve percent (12%)
unsecured convertible subordinated promissory notes. Directors of the
Company, including Robert H. Gilbertson, Ronald R. Runck and David B.
Clinton, purchased $110,000 of such notes. Interest on the unpaid principal
balance of the notes is 12% per annum until paid in full by the Company, or
otherwise converted by the holder. The notes are due in full, on the
earlier of: (i) the initial or first closing of this private placement; or
(ii) May 31, 1996. The notes are convertible into restricted Common Stock
of the Company at a rate equivalent to one (1) share of Company Common
Stock for every aggregate $.50 of principal converted under the note. In
addition, all investors were issued warrants to purchase, in the aggregate,
19,000 shares of Common Stock at a price of $1.00 per share during a period
of five years from the date of issuance of the warrants. Of such warrants,
directors of the Company received warrants to purchase a total of 11,000
shares of Common Stock as follows: Robert H. Gilbertson, warrants to
purchase 3,500 shares; Ronald R. Runck, warrants to purchase 3,500 shares;
and David B. Clinton, warrants to purchase 4,000 shares. Mr. Runck is no
longer a director of the Company.
On September 25, 1995, a director of the Company loaned the Company $25,000
under a 12% unsecured note payable on demand. In December 1995, the
director converted this obligation into a new 12% convertible unsecured
promissory note which is convertible into shares of Common Stock at $.50
per share and payable on the earlier of (i) the initial closing of the
Company's 1996 private placement; or (ii) March 31, 1996. As part of the
1995 bridge financing, The director also received a five-year warrant to
purchase 4,000 shares of Common Stock at an exercise price of $1.00 per
share.
6. Manufacturing and Packaging Agreement
In April 1994, the Company entered into a manufacturing and packaging
agreement with Dyno Minnesota of Virginia, Minnesota ("Dyno"). During
January, the Company requested release from the manufacturing and packaging
contract when Dyno was sold to Georgia-Pacific. Management of Georgia
Pacific has verbally agreed to release the Company from the agreement.
Under the agreement, Dyno has exclusive worldwide manufacturing and
packaging rights. Dyno formulates Tree Guard and ships it to the Company in
275 gallon mini-bulk containers for bottling by the Company at its
facility. The Company has explored manufacturing and packaging
relationships with Imperial Inc., a subsidiary of CENEX, and Universal
Cooperatives, Inc. Management believes production by either Imperial or
Universal would result in a reduction of manufacturing costs to the
Company.
7. Seasonal Nature of Sales
Although the Company has insignificant sales history, management believes
that, under normal circumstances, the Company will experience seasonal
demand for its products. The Company's best estimates are that peak sales
are most likely to occur just prior to customers' applications of the
Company's Tree Guard during the Spring and Fall. Other factors likely to
influence seasonality are weather conditions in areas which freeze, the
unique needs of commercial customers, and long lead-times in certain
distribution channels.
8. Going Concern
As stated in Note 13 of the Company`s audited financial statements for the
year ended December 31, 1995, such audited financial statements were
prepared on a going concern basis which contemplated the realization of
assets and satisfaction of liabilities in the normal course of business.
Prior to the first quarter ended March 31, 1996, the Company had incurred
losses of $542,950 in 1995 and $510,062 in 1994.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis provides information that management of
the Company believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the unaudited financial statements and footnotes
presented herewith and the audited financial statements for the year ended
December 31, 1995.
General
The Company has developed, introduced, and has commenced marketing of a new
proprietary product called Tree Guard(R) that is designed to deter deer,
rabbits, and other forest animals and wildlife from browsing and destroying
value-added trees, shrubs and other landscape and forest resources. The Company
believes, based on its own testing, that Tree Guard will fill a significant
niche in the animal repellent and forest resources industry.
In February 1995, the Company filed an application with the EPA to secure
federal registration for the sale and marketing of Tree Guard on a national
basis. This application followed an earlier, unsuccessful attempt to secure EPA
registration, which commenced during 1993. On January 30, 1996, the Company was
granted federal EPA registration number 66676-1. Although such registration has
been granted for Tree Guard, the Company must comply with all requirements of
the EPA on an ongoing basis, including, but not limited to: (i) the registration
of its EPA registration number with all state agencies throughout the United
States; and, (ii) the future possibility of incurring costs that may be required
in connection with re-registering denatonium benzoate (Bitrex(TM)) the active
ingredient in Tree Guard. In the future, if the Company fails to comply with
federal EPA regulations, it may be penalized, fined, or may have its EPA
registration revoked. To supplement the Company's EPA registration, the Company,
in July 1995, submitted a similar application to secure registration for the
sale and marketing of Tree Guard in Canada. Such application was submitted to Ag
Canada (the Canadian counterpart of the United States EPA) and the Company
expects to receive Canadian approval during the first half of 1996.
While it was awaiting federal EPA registration of Tree Guard, the Company
applied for, and was issued, state registrations based on Special Local Needs
(SLNs) in 12 states. In July 1994, the Company commenced limited sales and
marketing activities in Minnesota under SLN provisions. Prior to July 1994, the
Company's activities consisted primarily of research and development, completing
the acquisition of Nortech Forest Products (NFP), its sole wholly owned
subsidiary, preparing and monitoring its EPA application, filing and pursuing
domestic and foreign patent applications and special use permits, conducting
market evaluation, and evaluating suppliers.
Effective October 1, 1994, the Company entered into an exclusive sales agreement
with a locally-based exclusive sales agent to market Tree Guard. In the second
quarter of 1995, this agent abandoned this contract and ceased doing business.
This resulted in an adverse effect on the Company's sales and marketing efforts
during the second and third quarters of 1995.
<PAGE>
Results of Operations
Three Months Ended March 31, 1996 vs. the Three Months Ended March 31, 1995
Sales:
Sales for the three months ended March 31, 1996 (the first quarter) increased
nominally to $34,283 compared to $27,728 for the three months ended March 31,
1995. Sales during the first quarter of 1996 were adversely impacted for the
following reasons: (i) insignificant historical sales activity and the resulting
small customer base; (ii) insufficient marketing and sales experience in the
markets the Company serves; (iii) delays with the EPA registration of Tree Guard
with the resulting delay in successfully launching Tree Guard into the Spring
season; and, (iv) inadequate capital for marketing and sales activity.
During the past 12 months, the Company continued to experience limited sales
activity primarily resulting from: (i) a limited marketing area due to delays in
the issuance of federal EPA registration for Tree Guard; (ii) a loss of sales
momentum, particularly during the second half of 1995, as a result of an
independent sales organization's unsuccessful efforts, contract abandonment, and
eventual demise as the Company's exclusive sales representative; and (iii)
limited financial resources and staff with which to execute a more aggressive
sales strategy.
During 1995, the Company was granted SLN registrations by the states of Iowa and
Texas, bringing the total number of SLN-approved states to 12. Subsequent to
December 31, 1995, Ohio granted the Company its thirteenth SLN registration for
Tree Guard.
On January 30, 1996, the EPA issued the Company federal registration number
66676-1 for its Tree Guard deer repellent.
In January 1996, the Company hired a Director of Sales. In April 1996, the
Director of Sales was replaced by a salesperson with 19 years experience in the
markets the Company serves. The degree to which sales can be expanded during
1996, if at all, will be largely subject to the Company's ability to fund sales
and marketing activities to expand its customer and sales volume. The Company is
attempting to raise additional capital through the sale of private equity.
Gross Profit and Gross Profit Margin:
For the first quarter ended March 31, 1996, gross profit was $21,197, or 61.8%
of sales, compared to $18,763, or 67.8% of sales during the first quarter last
year. The decrease in gross profit margin during the first quarter of 1996 was
primarily due to increased raw material costs associated with the Company's
decision to increase the concentration of its active ingredient. The Company
anticipates that the increase in raw material costs will be offset by a decrease
in formulation costs. Management is currently reviewing two alternative sources
of formulation of Tree Guard which represent a decrease in formulation costs
compared to the Company's previous source of formulation. Therefore, the Company
anticipates that in upcoming quarters, its gross profit margin will increase.
Operating Expenses:
Administrative Expense. During the first quarter ended March 31, 1996,
administrative expense declined to $67,317 compared to $131,430 during the first
quarter last year. The decrease in administrative expense was primarily due to a
change in record-keeping that, during the first quarter of 1996, allocated a
portion of salary expense to research and development and sales and marketing,
rather than to administrative expense. Accordingly, administrative expense
decreased, and research and development expense and sales and marketing expense
increased during the first quarter of 1996 compared to the first quarter of
1995. The decrease in administrative expense was also due to a voluntary
reduction in salary by Robert H. Gilbertson, the Company's Chairman of the Board
and former Chief Executive Officer, and the effect of expense reduction in
administrative areas.
Sales and Marketing Expense. During the first quarter ended March 31, 1996,
sales and marketing expense increased to $36,318 from $7,271 during the first
quarter last year. The increase in sales and marketing expense was primarily due
to a change in record-keeping that, during the first quarter of 1996, allocated
a portion of salary expense to sales and marketing, rather than to
administrative expense. Accordingly, administrative expense declined during the
first quarter of 1996 compared to the first quarter last year.
<PAGE>
Research and Development Expense. During the first quarter ended March 31, 1996,
research and development expense increased to $$21,876 from $4,050 during the
first quarter last year. The increase in research and development expense during
the first quarter of 1996 resulted primarily from a change in record-keeping
that allocated a portion of salary expense to research and development rather
than to administrative expense. During the first quarter of 1995, no
record-keeping system was in place to accurately charge such expenses to
research and development.
Interest Expense. During the first quarter ended March 31, 1996, interest
expense was $8,198 compared to interest income of $964 during the first quarter
last year. Interest expense during the first quarter of 1996 was primarily due
to the Company's use of its bank line of credit, as well as that fact that the
Company received interest bearing loans from certain directors and stockholders
and others.
Net Loss. For the reasons discussed above, the Company incurred a net loss of
$112,512, or $.03 per share, for the first quarter ended March 31, 1996,
compared to a net loss of $123,024, or $.03 per share, during the first quarter
of 1995.
Liquidity and Capital Resources
At March 31, 1996, the Company had current assets of $121,024, current
liabilities of $591,195, and negative working capital of $470,171 compared to
current assets of $66,248, current liabilities of $427,106 and negative working
capital of $360,858 on December 31, 1995. The increase in negative working
capital was primarily due to an increase in notes payable, offset by decreases
in accounts payable - trade and bank line-of-credit and increases in accounts
receivable and inventories.
Effective March 10, 1995, the Company secured a $100,000 revolving line of
credit with Norwest Bank, Minnesota N.A. This line of credit is secured by the
Company's accounts receivable, inventories and substantially all assets of the
Company. At March 31, 1996, there was $72,000 outstanding under this line of
credit, and the entire balance is due in full by May 31, 1996. This line of
credit accrues interest at 5% over the prime rate and interest is payable
monthly. The note is also personally guaranteed by Robert H. Gilbertson, the
Chairman of the Board of the Company.
On December 11, 1995, the Company closed on commitments for an unsecured debt
financing with six accredited investors, including three then-current directors
of the Company. The Company issued a total of $190,000 of twelve percent (12%)
unsecured convertible subordinated promissory notes. Of the $190,000, $130,000
was received in 1995 and $60,000 was received in 1996. Directors of the Company,
including Robert H. Gilbertson, Ronald R. Runck and David B. Clinton, purchased
$110,000 of such notes. Interest on the unpaid principal balance of the notes is
12% per annum until paid in full by the Company, or otherwise converted by the
holder. The notes are due in full, on the earlier of: (i) the initial or first
closing of the private placement; or (ii) May 31, 1996. The notes are
convertible into restricted Common Stock of the Company at a rate equivalent to
one (1) share of Company`s Common Stock for every aggregate $.50 of principal
converted under the note. In addition, all investors were issued warrants to
purchase, in the aggregate, 19,000 shares of Common Stock at a price of $1.00
per share during a period of five years from the date of issuance of the
warrants. Of such warrants, directors of the Company received warrants to
purchase a total of 11,000 shares of Common Stock as follows: Robert H.
Gilbertson, warrants to purchase 3,500 shares; Ronald R. Runck, warrants to
purchase 3,500 shares; and David B. Clinton, warrants to purchase 4,000 shares.
Mr. Runck is no longer a director of the Company.
<PAGE>
On September 25, 1995, Director Clinton loaned the Company $25,000. This
obligation was unsecured, due on demand and accrued interest at 12% per annum.
In December 1995, this obligation was converted into a new 12% convertible
unsecured promissory note, which is convertible into shares of Common Stock at
$.50 per share and payable on the earlier of (i) the initial closing of the
Company's 1996 private placement; or (ii) March 31, 1996. Although the note
became due on March 31, 1996, the Company has not paid the note. As part of the
1995 bridge financing, Mr. Clinton also received a five-year warrant to purchase
4,000 shares of Common Stock at an exercise price of $1.00 per share.
On February 2, 1996, director Clinton loaned the Company $150,000 pursuant to a
12% Promissory Note, with the principal due on the earlier of (i) the initial
closing date of the Company's 1996 private placement; or (ii) September 30,
1996. Interest accrues at a rate of 12% per annum and is payable monthly. In
connection with this loan, the Company issued Mr. Clinton five-year warrants to
purchase 15,000 shares of common Stock at an exercise price of $1.00 per share,
and granted Mr. Clinton a security interest in the Company's assets. Also, in
connection therewith, Mr. Gilbertson, the Company's Chairman, agreed to pledge
his shares of Company common Stock as collateral in the event the Company fails
to pay Mr. Clinton on or before September 30, 1996.
On June 20, 1995, the Company issued a Notice of Redemption to redeem all
outstanding warrants to acquire 326,000 shares of the Company's Common Stock. On
August 4, 1995, the Company redeemed warrants to acquire 307,000 shares of
Common Stock at a cost to the Company of $307 or $.001 per share. Prior to such
redemption, five warrantholders elected to exercise their warrants to purchase
19,000 shares of the Company's Common Stock for gross proceeds to the Company of
$14,250.
During the first half of 1996, the Company intends to raise additional capital
through a private offering of its Common Stock. Furthermore, the Company
believes that, in order to achieve aggressive market penetration objectives, it
may be required to raise additional capital during 1997. Despite the fact that
the Company was granted federal registration of Tree Guard by the EPA on January
31, 1996, as well as the fact that the Company hired a senior sales executive to
implement a national sales program for Tree Guard, no assurances can be given
that the Company will be successful in acquiring short-term or long-term
financing, or that such a sales program will be successful.
The Company's obligations under its line of credit with Norwest Bank in the
amount of $72,000 and under unsecured convertible subordinated promissory notes
in the amount of $190,000 become due on May 31, 1996. The Company will be unable
to repay these obligations on such date without obtaining additional debt or
equity financing. If no additional financing is obtained, these creditors may
take action against the Company which might prevent the Company from continuing
operations or cause the Company to seek protection from its creditors under the
bankruptcy laws.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a party to any material pending legal proceedings and, to the
best of its knowledge, its properties are not the subject of any such
proceedings.
Item 2. Change in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Securities-Holders.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit number 27. Description: Financial Data Schedule
(filed with electronic version only)
(b) Form 8-K
For the quarter ended March 31, 1996, the Company did not file any reports
on Form 8-K.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NORTECH FOREST TECHNOLOGIES, INC.
(the "Registrant" or "Company")
Dated: May 13, 1996 By: /s/ Thomas J. de Petra
Thomas J. de Petra, Chief Executive
Officer (Principal Executive Officer
and Principal Financial and
Accounting Officer)
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