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, 1997
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 06-1342912
(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)
Check whether the issuer: (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 March 31, 1997, the Registrant had approximately 1,654,130 shares of $.01
par value Common Stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No _X_ .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Nortech Forest Technologies, Inc., a Delaware corporation (the "Company") files
herewith balance sheets as of December 31, 1996 and March 31, 1997 and the
related statements of operations and cash flows for the three months ended March
31, 1997 and 1996, respectively. In the opinion of management of the Company,
the unaudited financial statements reflect all adjustments, all of which are
normal recurring adjustments necessary to fairly present the financial condition
of the Company for the interim period presented. The unaudited financial
statements included in this report on Form 10-QSB should be read in conjunction
with the audited financial statements of the Company and the notes thereto
included in the Annual Report filed on Form 10-KSB for the year ended December
31, 1996.
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 effective date of the
one-for-four reverse split of the Company's Common Stock was May 24, 1996, and
the unaudited financial statements enclosed herewith reflect adjustment for the
number of shares of outstanding Common Stock.
NORTECH FOREST TECHNOLOGIES, INC.
BALANCE SHEETS
March 31, December 31,
1997 1996 (1)
--------- ---------
(Unaudited)
ASSETS
Current assets:
Cash $ 50,519 $ 34,578
Accounts receivable 10,815 -
Inventories
Finished goods 4,246 4,771
Raw materials 29,807 32,178
Prepaid expenses 30,485 4,928
--------- ---------
Total current assets 125,872 76,455
--------- ---------
Long-term assets:
Equipment 65,358 78,155
Accumulated depreciation (32,481) (37,750)
--------- ---------
32,877 40,405
--------- ---------
Other assets:
Organizational costs, net of accumulated
amortization of $617 and $587 during
1997 and 1996, respectively 10 41
Patent costs (4) -0- 38,409
Other assets 3,250 3,250
--------- ---------
3,260 41,700
--------- ---------
$ 162,009 $ 158,560
========= =========
(1) See Note 1 to the financial statements.
(4) See Note 4 to the financial statements.
SEE NOTES TO FINANCIAL STATEMENTS
March 31, December 31,
1997 1996
----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable - trade $ 36,581 $ 76,958
Note payable - other -0- 30,000
Accrued expenses 9,716 19,756
----------- -----------
Total current liabilities 46,297 126,714
----------- -----------
Stockholders' equity:
Preferred Stock, par value $.01 per share;
500,000 shares authorized, none issued - -
Common Stock, par value $.01 per share;
3,750,000 shares authorized; issued and
outstanding, 1,654,130 shares at March
31, 1997 and 1,509,900 shares at December
31, 1996 16,541 15,099
Paid in capital 1,672,572 1,432,109
Accumulated deficit (1,573,401) (1,415,362)
----------- -----------
Total stockholders' equity 115,712 31,846
----------- -----------
$ 162,009 $ 158,560
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
1997 1996
----------- -----------
Sales $ 53,551 $ 34,283
Cost of sales 24,150 13,086
----------- -----------
Gross profit 29,401 21,197
----------- -----------
Operating expenses:
Administrative 69,722 67,317
Sales and marketing 63,229 36,318
Research and development 10,209 21,876
----------- -----------
143,160 125,511
----------- -----------
Net loss on operations (113,759) (104,314)
Other income and expense
Interest expense (320) (8,198)
Write-off of patent costs (4) (38,409) -
Loss on disposal of equipment (5,551) -
----------- -----------
Net loss $ (158,039) $ (112,512)
=========== ===========
Net loss per common share $ (.10) $ (.11)
=========== ===========
Weighted average number of shares of
common stock 1,614,167 1,065,375
=========== ===========
(4) See Note 4 to the financial statements.
SEE NOTES TO FINANCIAL STATEMENTS
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash
Three months ended March 31,
1997 1996
--------- ---------
Cash flows from operating activities:
Net loss (4) $(158,039) $(112,512)
Adjustments to reconcile net loss to
net cash flows from operating activities
Amortization 31 207
Depreciation (4) 3,306 3,559
Accounts receivable (10,815) (18,272)
Inventories 2,896
Options and warrants for services 9,375 -
Write-off of patent costs 38,409 -
Loss on disposal of equipment 5,551 -
Accounts payable (40,377) (16,697)
Accrued expenses (10,040) (3,405)
Other 2,568 (4,848)
--------- ---------
Net cash flows from operating activities (157,135) (156,098)
--------- ---------
Cash flows from investing activities:
Purchase of long-term assets (1,329) (460)
Patent costs (4) -0- (107)
--------- ---------
Net cash flows from investing activities (1,329) (567)
--------- ---------
Cash flows from financing activities:
Bank line-of-credit -0- (25,000)
Sale of stock for cash - net of expenses 179,405 -0-
Payment of long-term debt -0- (809)
Note payable - related party -0- 185,000
Note payable - other (5,000) 25,000
--------- ---------
Net cash flows from financing activities 174,405 184,191
---------
Net increase (decrease) in cash 15,941 27,526
Cash, beginning of period 34,577 30,919
--------- ---------
Cash, end of period $ 50,518 $ 58,445
========= =========
(4) See Note 4 to financial statements.
SEE NOTES TO FINANCIAL STATEMENTS
NORTECH FOREST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 (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 unaudited financial statements be read in
conjunction with the December 31, 1996 audited financial statements and the
accompanying notes thereto. Although audited, the balance sheet at December
31, 1996 does not include the information and notes required by generally
accepted accounting principles for complete financial statements. 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 may 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. REVERSE SPLIT
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 shares to 500,000 shares. The effective date of the one-for-four
reverse split May 24, 1996, and the unaudited financial statements enclosed
herewith reflect said adjustment for the number of shares of outstanding
Common Stock.
3. EQUITY
In the quarter ended March 31, 1997, the Company sold an investor 125,000
shares of Common Stock at $1.60 per share for $200,000 in cash proceeds. In
connection with the sale of Common Stock, the Company issued the investor a
three-year warrant to purchase 40,000 shares of Common Stock at an exercise
price of $1.60 per share. The Company also issued a two-year warrant for
50,000 shares of Common Stock at $1.00 per share for services.
4. WRITE OFF OF ASSETS - PATENT COSTS AND OBSOLETE EQUIPMENT
In the quarter ended March 31, 1997, the Company wrote off $38,409 in other
assets related to the cost of its patent application and $5,551 in other
assets related to obsolete computer software. These amounts were charged to
other income and expense.
5. SUBSEQUENT EVENT
Subsequent to March 31, 1997, the Company sold an investor 93,750 shares of
Common Stock at $1.60 per share for $150,000 in cash proceeds. In
connection with the sale of Common Stock, the Company issued the investor a
three-year warrant to purchase 30,000 shares of Common Stock at an exercise
price of $1.60 per share. Also, in connection with a two-year employment
agreement with the investor to serve as Chief Executive Officer, the
Company granted a ten-year option to purchase 75,000 shares of Common Stock
at $1.50 per share. 25,000 shares of said stock option become vested on
each of April 15, 1998, 1999 and 2000. In addition, , the Company granted
its Chief Operating Officer a ten-year option to purchase 75,000 shares of
Common Stock under the same terms as described for the aforementioned
75,000 stock option.
6. 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 believes that peak sales are most
likely to occur just prior to customers' applications of TREE GUARD during
the spring and fall. Other seasonal factors are weather conditions in areas
which freeze, and the buying patterns of certain distribution channels.
Accordingly, results for the first quarter ended March 31, 1997 are
consistent with management's expectations and historical results.
7. GOING CONCERN
As stated in Note 16 of the Company`s audited financial statements for the
year ended December 31, 1996, 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.
The Company incurred losses and $542,950 in 1995 and $510,062 in 1994. As
of March 31, 1997, the Company has accumulated losses of $1,573,401.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition.
Certain statements contained herein are forward-looking statements within the
meaning of the Securities Act of 1933 and the Securities and Exchange Act of
1934 that involve a number of risks and uncertainties. Such forward-looking
information may be indicated by words such as will, may be, expects or
anticipates. In addition to the factors discussed herein, among the other
factors that could cause the Company's actual results to differ materially from
current expectations are the following: business conditions and growth in the
plant protection industry and the general economy; competitive factors such as
rival manufacturers and sellers of plant and tree protection products and price
pressures; availability of product component chemicals at reasonable prices;
inventory risks due to shifts in market demand; and risks presented from time to
time in reports filed by the Company with the Securities and Exchange
Commission, including, but not limited to the Company's annual report on Form
10-KSB for the year ended December 31, 1996.
GENERAL
The Company manufactures and markets TREE GUARD(R), a proprietary, ready-to-use
product that the Company developed 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 manufactures substantially the
same product as TREE GUARD, which is packaged and sold under the Ferti-lome
brand labeled as "THIS 1 WORKS" DEER REPELLENT. Both TREE GUARD and THIS 1 WORKS
are registered by the U.S. Environmental Protection Agency (EPA) under
registration number 66676-1 issued to the Company on January 30, 1996.
RESULTS OF OPERATIONS
Sales:
Sales for the first quarter ended March 31, 1997 were $53,551 compared to
$34,283 for the first quarter last year. Although sales during the first quarter
reflect improved performance compared to the same period last year, the
Company's progress in expanding sales was curtailed by inadequate working
capital. As a result, the Company's distribution of TREE GUARD remains limited
primarily to the midwest, east coast and pacific northwestern states.
Although the Company has expanded its distribution significantly during the last
several quarters, the degree to which sales can be expanded during 1997 and
beyond will be largely subject to the Company's ability to raise additional
capital to fund sales and marketing activities. (see Liquidity and Capital
Resources).
During April 1997, the Company appointed Samuel D. Garst as Chief Executive
Officer and elected him to the Board of Directors. Mr. Garst will concentrate
his primary attention toward refocusing the Company's marketing strategy to
achieve further growth in the future.
Gross Profit and Gross Profit Margin:
For the first quarter ended March 31, 1997, gross profit was $29,401, or 54.9%
of sales, compared to $21,197, or 61.8% of sales, during the same period last
year. The decline in gross profit, as a percentage of sales, was due to
increased costs associated with (1) a higher freight rate for heated trailers to
prevent product and raw material shipments from freezing; and (2) a change in
the Company's freight policy. The combined effect of these freight-related costs
was approximately $4,000 and lowered the Company's gross profit margin by
approximately 7%. This decline was further impacted by a sales mix that favored
sales of lower margin products in connection with the Company's private label
agreement.
Administrative Expense. During the first quarter ended March 31, 1997,
administrative expense was $69,722 compared to $67,317 during the first quarter
last year.
Sales and Marketing Expense. During the first quarter ended March 31, 1997,
sales and marketing expense was $63,229 compared to $36,318 during the first
quarter last year. The increase was due to increased advertising, trade show,
travel and other marketing expenses related to the Company's 1997 TREE GUARD
marketing plan.
Research and Development Expense. During the first quarter ended March 31, 1997,
research and development expense was $10,209 compared to $21,876 for the first
quarter last year. The decrease reflects the Company's emphasis on marketing and
selling, rather than research and development, during 1997.
Interest Expense. During the first quarter ended March 31, 1997, interest
expense was $320 compared to $8,198 during the first quarter last year. The
decrease in interest expense was due to the Company repaying substantially all
of its interest-bearing obligations during 1996.
Net Loss. For the reasons discussed above, the Company incurred a net loss of
$158,039, or $.10 per share, for the first quarter ended March 31, 1997,
compared to a net loss of $112,512, or $.11 per share, during the first quarter
last year.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1997, the Company had current assets of $125,872, current
liabilities of $46,297, and working capital of $79,575 compared to current
assets of $76,455, current liabilities of $126,714 and negative working capital
of $50,259 on December 31, 1996. The increase in working capital was primarily
due to an increase in cash due to a $200,000 equity investment, net of expenses
and an increase in accounts receivable, and decreases in accounts payable, notes
payable and accrued expenses, which were offset, in part, by decreases in
inventories and prepaid expenses.
Subsequent to March 31, 1997, the Company sold an investor 93,750 shares of
Common Stock at $1.60 per share for $150,000 in cash proceeds. In connection
with the sale of Common Stock, the Company issued the investor a three-year
warrant to purchase 30,000 shares of Common Stock at an exercise price of $1.60
per share.
Since April 1996, the Company has raised $690,000 of the $1.5 million sought in
its private offering of Common Stock. Because the equity offering has taken
significantly longer to complete than was anticipated, there is no assurance
that the full $1.5 million can be secured on a timely basis, or if the remainder
can be raised at all. Furthermore, if additional capital is raised, there is no
assurance that it will be under terms that will be attractive to the Company.
Although the Company has established new customer relationships that it believes
are strategically important in the long term, and has increased its level of
sales experience significantly, no assurances can be given that the Company's
sales results will be sufficient to enable the Company to achieve its financing
requirements or to operate profitably.
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits.
Exhibit 27. Financial Data Schedule (filed with electronic version only)
b) Form 8-K
For the quarter ended March 31, 1997, the Company did not file any reports
on Form 8-K.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant 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 11, 1997 By: /s/ Samuel D. Garst
Samuel D. Garst, Chief Executive
Officer, Principal Executive Officer and
Principal Financial and Accounting Officer
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