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 JUNE 30, 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 June 30, 1997, the Registrant had 1,747,880 shares of $.01 par value
Common Stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes _____ No __X__.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
Nortech Forest Technologies, Inc., a Delaware corporation (the "Registrant" or
"Company") files herewith balance sheets as of December 31, 1996 and June 30,
1997 and the related statements of operations and cash flows for the six months
ended June 30, 1997 and 1996, respectively. In the opinion of management of the
Registrant, the unaudited 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 unaudited
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, 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 said adjustment for
the number of shares of outstanding Common Stock.
NORTECH FOREST TECHNOLOGIES, INC.
BALANCE SHEETS
June 30, December 31,
1997
---------
Current assets:
Cash $ 56,004 $ 34,578
Accounts receivable 61,431 -
Inventories
Finished goods 15,078 4,771
Raw materials 17,971 32,178
Prepaid expenses 27,399 4,928
--------- ---------
Total current assets 177,883 76,455
--------- ---------
Long-term assets:
Equipment 69,281 78,155
Accumulated depreciation (35,211) (37,750)
--------- ---------
34,070 40,405
--------- ---------
Other assets:
Organizational costs, net of accumulated
amortization of $617 and $587 during
1997 and 1996, respectively 0 41
Patent costs, net of accumulated
amortization of -0- and -0- during
1997 and 1996, respectively (4) 0 38,409
Other assets 3,250 3,250
--------- ---------
3,250 41,700
--------- ---------
$ 215,203 $ 158,560
========= =========
<PAGE>
(1) See Note 1 to the financial statements.
(4) See Note 4 to the financial statements.
June 30, December 31,
1997 1996
----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable - trade $ 21,651 $ 76,958
Note payable - other 0 30,000
Accrued expenses 15,168 19,756
----------- -----------
Total current liabilities 36,819 126,714
----------- -----------
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, 1,747,880 shares at March
31, 1997 and 1,509,900 shares at December
31, 1996 17,479 15,099
Paid in capital 1,821,457 1,432,109
Deferred Compensation 7,500 0
Accumulated deficit (1,653,052) (1,415,362)
-----------
Total stockholders' equity 178,384 31,846
----------- -----------
$ 215,203 $ 158,560
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 145,481 $ 36,000 $ 199,032 $ 70,284
<PAGE>
Cost of sales 49,432 20,311 73,582 33,398
----------- ----------- ----------- -----------
Gross profit 96,049 15,689 125,450 36,886
----------- ----------- ----------- -----------
Operating expenses:
Administrative 92,705 75,694 162,428 137,592
Sales and marketing 83,157 41,470 137,011 83,206
Research and development 9,212 8,510 19,421 30,386
----------- ----------- ----------- -----------
185,074 125,674 318,860 251,184
----------- ----------- ----------- -----------
Net loss on operations (89,025) (109,985) (193,410) (214,299)
Other income and expense
Interest expense 0 (12,576) (320) (20,775)
Write-off of patent costs (4) 0 0 (38,409) 0
Loss on disposal of equipment (4) 0 0 (5,551) 0
----------- ----------- ----------- -----------
Net loss $ (89,025) $ (122,561) $ (237,690) $ (235,073)
=========== =========== =========== ===========
Net loss per common share $ (0.05) $ (0.11) $ (0.14) $ (0.21)
=========== =========== =========== ===========
Outstanding shares of
common stock 1,730,336 1,096,208 1,671,741 1,096,208
=========== =========== =========== ===========
</TABLE>
(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
Six months ended June 30,
-------------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Net loss (4) $(237,690) $(235,073)
Adjustments to reconcile net loss to
net cash flows from operating activities
Amortization 41 237
Depreciation (4) 6,036 7,118
Accounts receivable (61,431) ((1,863)
Inventories 3,900 8,275
Accounts payable (55,307) 17,460
Accrued expenses (4,588) 1,876
Other 5,654 (7,512)
<PAGE>
Loss on disposal of equipment 5,551 0
Write-off of Patent costs 38,409 0
Options & Warrants for Services 16,875 0
--------- ---------
Net cash flows from
operating activities (282,550) (205,939)
--------- ---------
Cash flows from investing activities:
Purchase of long-term assets (5,252) (460)
Patent costs (4) 0 (2,588)
--------- ---------
Net cash flows from investing activities (5,252) (2,811)
--------- ---------
Cash flows from financing activities:
Bank line-of-credit 0 (28,000)
Sale of stock for cash 314,228 0
Payment of long-term debt (5,000) (1,617)
Note payable - related party 0 186,500
Note payable - other 0 25,000
--------- ---------
Net cash flows from financing activities 309,228 181,883
--------- ---------
Net increase (decrease) in cash 21,426 (26,867)
Cash, beginning of period 34,578 30,919
--------- ---------
Cash, end of period $ 56,004 $ 4,052
========= =========
(4) See Note 4 to financial statements.
SEE NOTES TO FINANCIAL STATEMENTS
NORTECH FOREST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 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 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.
<PAGE>
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 the quarter ended June 30, 1997, the Company sold an
investor 93,250 shares of Common Stock at $1.60 per share for $150,000
in cash proceeds. In connection with these sales of Common Stock, the
Company issued the two investors three-year warrants to purchase 40,000
and 30,000 shares of Common Stock at an exercise price of $1.60 per
share, respectively. Also during the quarter, in connection with a
two-year employment agreement with the second 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. The Company also 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.
4. WRITE OFF OF ASSETS - PATENT COSTS AND OBSOLETE EQUIPMENT
In the quarter ended March 31, 1997, the Company wrote off $37,159 in
other assets related to its patent application and $5,551 in other
assets related to obsolete computer software.
5. 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.
6. 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 of $163,795 in 1996 and
$542,950 in 1995. As of June 30, 1997, the Company has accumulated
losses of $237,690 for the first 6 months of 1997 for a total loss
accumulated loss of $1,653,052.
NORTECH FOREST TECHNOLOGIES, INC.
MANAGEMENT DISCUSSION & ANALYSIS
THREE MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
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
<PAGE>
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,
flowering ornamentals, 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:
Net sales for the three months and six months ended June 30, 1997 were $145,481
and $199,032, respectively, compared to $36,000 and $70,284 for the respective
periods last year. Although sales during the second quarter reflect improved
performance compared to the same period last year, the Company's progress in
expanding sales was limited by distribution of TREE GUARD to a small network of
distributors in the midwest, east coast and pacific northwestern states. While
distribution agreements are now in place with several major new distributors for
the fall 1997 season, sales into the future may be limited by the need for
capital to finance sales programs common within the trade.
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).
Gross Profit and Gross Profit Margin:
For the three months and six months ended June 30, 1997, gross profit was
$96,049 and $125,450, or 66.0% and 63% of sales, respectively, compared to
$15,689 and $36,886, or 43.6% and 52.5% of sales for the respective periods last
year. The increase in gross profit, as a percentage of sales, was due to
primarily to the shift of production to an external vendor from in-house
production. Margins were negatively impacted in the quarter because of an early
order discount program to assure that product moved into the distribution
channel in ahead of the fall season.
Administrative Expense. During the three months and six months ended June 30,
1997, administrative expense was $92,705 and $162,428, respectively, compared to
$75,694 and $137,592 for the respective periods last year. This increased costs
was largely professional fees related to various equity transactions. The
increase is attributed to the increased in use of professional services related
to the issuance of stock to new investors and the issuance of options to a key
employee.
Sales and Marketing Expense. During the three months and six months ended June
30, 1997, sales and marketing expense was $83,157 and $$137,011, respectively,
compared to $41,470 and $83,206 for the respective periods last year. The
increase was due to increased advertising, public relations, trade show, travel
and other marketing expenses related to the Company's 1997 TREE GUARD marketing
plan for the fall selling season of 1997.
Research and Development Expense. During the three months and six months ended
June 30, 1997, research and development expense was $9,212 and $19,421,
respectively, compared to $8,510 and $30,386 for the respective periods last
year. The decline is reflected by the increased emphasis on sales and marketing.
Interest Expense. During the three months and six months ended June 30, 1997,
interest expense was $0 and $320 respectively, compared to $12,576 and $20,775
for the respective periods last year. The decrease in interest expense was due
to the Company repaying all of its interest-bearing obligations during 1996 and
early 1997.
Net Loss. For the reasons discussed above, the Company incurred a net loss for
the three months and six months ended June 30, 1997 of $89,025 and $237,690, or
$.05 and $.14 per share, respectively, compared to a net loss of $122,561 and
$235,073, or $.12 and $.21 per share, for the respective periods last year.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 1997, the Company had current assets of $177,883, current
liabilities of $36,819, and working capital of $141,064 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 increases in cash, accounts receivable, and inventory and decreases in
accounts payable, notes payable and accrued expenses.
During the quarter ended June 30, 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. During the quarter ended March 31, 1997, the Company
sold an investor 125,000 shares of Common Stock at $1.60 per share for
<PAGE>
$200,000 in cash proceeds. In connection with this 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.
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. Even if the Company is
successful in raising additional capital in the near future, management believes
that, in order to achieve aggressive market penetration objectives, it may be
required to raise additional capital during 1997 or 1998.
Subsequent to the end of the quarter ended June 30, 1997 , the Company secured a
line of credit against accounts receivables, secured by substantially all of the
Company's assets. The maximum borrowings on this line of credit are $200,000
secured by 75% of the value of accounts receivable. Interest on the line of
credit is 10% over the prime rate of interest (total of 18.5% as of 8/1/97) or a
minimum of $1,000 per month whichever is greatest. The term for the line of
credit is for 6 months. The Company believes that this facility will allow it to
operate a customer deferred payment program which is common in its industry.
There is no assurance that this line can be successfully renegotiated.
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 10.16 Financing Agreement with Itasca Business Credit, LLC,
July 30, 1997
Exhibit 10.17 Security Agreement with Itasca Business Credit, LLC,
July 30, 1997
Exhibit 27. Financial Data Schedule (filed with electronic version only)
b) Form 8-K
For the quarter ended June 30, 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: August 14, 1997 By: /s/ Samuel D. Garst
Samuel D. Garst, Chief Executive
Officer, Principal Executive Officer and
Principal Financial and Accounting Officer
EXHIBIT 10.16
FINANCING AGREEMENT
JULY 30, 1997
Itasca Business Credit LLC
Parkdale Plaza, Suite 146
1660 South Highway 100
St. Louis Park, MN 55416-1532
Gentlemen:
We propose the following arrangement with you for borrowing from you
based upon the loan value of our "accounts" (as that term is defined in the
Uniform Commercial Code) secured by a security interest in the accounts and
other collateral, as granted to you by the Security Agreement between us of even
date herewith.
SECTION I. LOAN AGREEMENT
At our request, you in your sole discretion may lend to us up to
seventy five percent (75.0%) of the net amount of accounts which are listed in
current schedules provided by us and which are deemed eligible for advances by
you, or any greater or lesser percentage at your absolute discretion. Loans for
additional sums requested by us may be made at your sole discretion based upon
your valuation of other collateral or other factors. All borrowings pursuant
hereto shall be due on demand and shall be evidenced by a Revolving Note of even
date herewith payable to your order.
At your discretion, you may from time to time make additional loans to
us on a demand basis, evidenced by Term Note(s). All of the collateral pledged
to you shall secure all of our obligations under the Revolving Note and any Term
Note(s).
You may from time to time furnish to us a statement of our account. Any
such statement shall be conclusive on us unless and except as written objections
thereto calling your attention to errors are received by you within 30 days
after it is mailed or delivered to us.
SECTION II. CHARGES
A. We agree to pay interest on the net balance owed to you at the close
of each day at a rate per annum (computed on the basis of actual number of days
elapsed and a year of 360 days) which is ten percent (10.0%) in excess of the
publicly announced prime rate (or other publicly announced reference rate) of
interest charged by the First Bank, N.A. Such interest will be due and payable
to you at the close of each month. We understand that the foregoing prime rate
or reference rate may not represent the lowest rate charged by the foregoing
lender.
B. If a third party participates in the advances to us, however, the
charge with respect to the portion of the borrowings represented by the third
party's advances will be the amount of its charges and a management fee charged
by you by reason of such participation.
<PAGE>
C. There will be a net minimum interest charge payable to you of
$1,000.00 per month. We further agree that if this agreement is terminated under
Section VIII hereof, regardless of the date of such termination, the total
charges which shall have been paid or which shall be payable net to you, shall
not be less than $1,000.00 each month for a minimum of six months.
D. If we refinance the loan evidenced hereby with the proceeds of a
loan by a lender other than a state or national bank, we hereby agree to pay you
an exit fee of $5,000.00 and you shall not be required to release your liens on
any collateral until the foregoing fee has been paid in full.
SECTION III. LISTING ACCOUNTS
A. Prior to or concurrently with our initial borrowing hereunder, and
monthly thereafter, we shall furnish you a list and aging of all accounts owned
by us, in form acceptable to you; and weekly, or at other intervals mutually
agreed upon, we will deliver to you a list of all accounts created or acquired
by us since our last previous list and aging of accounts.
B. We warrant that, except as may be disclosed in the lists of accounts
furnished to you: each billing correctly states the subject matter and terms of
sale; the merchandise conforms thereto and is in all respects acceptable to the
customer; the date of billing is not prior to shipment; the account debtor is
not a subsidiary or affiliated company; and that we have no reason to believe
the account will not be paid in the regular course of business.
SECTION IV. CUSTODY AND INSPECTION OF RECORDS; HANDLING OF COLLECTIONS
A. All ledger sheets or cards, invoices, shipping records,
correspondence, and other writings relating to accounts shall, until delivered
to you or removed by you from our premises, be kept on our premises without cost
to you in appropriate containers in safe places.
B. Until our authority to do so is terminated by written notice from
you (which notice you may give at any time), we will at our expense and on your
behalf collect as your property and in trust for you all amounts unpaid on
accounts, and shall not mingle such collections with our own funds. We shall
remit all collections to you in kind, duly endorsed, on the same day if
practical, otherwise on the following business day; and you shall credit the
same to our account (subject to final collection thereof) after allowing three
days for collection of checks. This provision is subject to your rights under
paragraphs 4 and 5 of the Security Agreement of even date herewith.
C. If you take over the handling of collections, you may remove from
our premises all books and records, correspondence, documents and files relating
to accounts; and you may without cost or expense to you use such of our
personnel, supplies, space and equipment at our place of business as you may
desire for the handling of collections. We will pay any and all reasonable
internal, office and out of pocket expenses and costs of collection (including
reasonable attorneys fees) incurred by you in your handling of or effort to
enforce collections.
SECTION V. REPORTS
We will furnish you: (a) monthly, in such detail as you may request,
written reports, certified as correct by one of our officers, showing all sales
of merchandise, returns and allowances, collections, and all miscellaneous
charges and credits affecting the collateral; (b) monthly, similarly certified
financial and operating statements; (c) annually, at our expense, a complete
certified audit report of our operations and condition made by an independent
certified public accountant satisfactory to you; and (d) upon issuance, copies
of all public accountants' report rendered to us while we are indebted to you;
(e) within five days after the due date, proof of
<PAGE>
payment or deposit, when due, of all withholding and F.I.C.A. taxes owing by us
from time to time; and (f) such other financial or other information regarding
us or any guarantor as you may request.
SECTION VI. WARRANTIES, REPRESENTATIONS AND COVENANTS
We warrant, represent to and covenant with you that we shall not:
permit any levy, attachment or restraint to be made affecting any of our assets;
or permit any receiver, trustee or assignee for the benefit of creditors to be
appointed to take possession of any or all of our assets. Except with your prior
written consent, we shall not: (a) other than in the ordinary course of our
business, sell, lease or otherwise dispose of or transfer any of our assets; (b)
merge or consolidate with any other corporation; (d) acquire any other
corporation; (d) enter into any transaction not in the usual course of our
business; (e) make any investment in the securities of any person, association,
firm, entity or corporation other than securities of the United States of
America; (f) guarantee or otherwise become in any way liable with respect to the
obligations of any person, association, firm, entity or corporation except by
endorsement of instruments or items of a payment for deposit to our general
account or which are transmitted or turned over to you on account of our
obligations; (g) pay or declare any dividends upon our capital stock; (h)
redeem, retire, purchase or otherwise acquire directly or indirectly any of our
capital stock; (i) make any change in our capital structure or in any of our
business objectives, purposes and operations which might in any way adversely
affect our ability to repay our obligation; (j) make any distribution of our
property or assets; (k) incur any debts for borrowed money; (l) incur any debts
other than trade payables which must be incurred and paid in the ordinary course
of our business; or (m) make any loan, advance, contribution or payment of money
or goods to any subsidiary, affiliated or parent corporation or to any officer,
director or stockholder thereof (except compensation for personal services
rendered). In addition, we further agree that we will not encumber, pledge,
assign or permit to be created a lien or security interest in any of our
property except for the liens in favor of the following persons on the following
property: ______________________________________________________________________
________________________________________________________________________________
_______________________________________________________________________________.
We hereby represent that none of the accounts shall at any time be subject to a
bond or other surety unless we have notified you in writing in advance of
obtaining the bond. All covenants, representations and warranties set forth in
this agreement and in any other agreements executed by us in connection herewith
and all terms, conditions, provisions and agreements to be performed by us
pursuant to this agreement and such other agreements shall be true and satisfied
at the time of our execution and shall survive the closing thereof and the
execution and delivery of such agreements.
SECTION VII. MISCELLANEOUS
A. We agree that you may from time to time, for your convenience,
segregate or apportion the collateral for purposes of determining the amounts
and maximum amounts of loans and advances which may be made hereunder.
Nevertheless, your security interest in all such collateral, and any other
collateral rights, interest and properties which may now or hereafter be
available to you, shall secure and may be applied to the payment of any and all
loans, advances and other indebtedness secured by your security interest, in any
order or manner of application and without regard to the method by which you
determine to make loans hereunder.
B. We hereby irrevocably make, constitute and appoint you, or any
person whom you may designate, our true and lawful attorney with power to
receive, open and dispose of all mail addressed to us; to endorse the name of
our company upon any notes, acceptances, checks, drafts, money orders or other
means of payment that may come into your possession as payment of or upon
accounts or other collateral; to endorse the name of our company on any invoice,
freight or express bill or bill of lading relating to any collateral; to sign
our name to drafts against debtors, to assignments and verification of accounts
and notices thereof to debtors; and to do all other things necessary or proper
to carry out the intent of this agreement.
C. At your request, we will deliver customers' monthly statements to
you for examination and for mailing in our stamped addressed envelope. From time
to time, you or your representatives may verify directly
<PAGE>
with customers and the amounts owing, or at your request, we or our independent
accountants will do so and deliver the results to you in any manner satisfactory
to you.
D. We agree that any bank participating with you in loans to us
hereunder may exercise any and all rights of banker's lien or set-off with
respect to such participation as fully as if such participant had lent directly
to us the amount of such participation.
E. We agree to reimburse you for all attorney fees, filing fees, and
other out-of-pocket expenses you may incur in connection with the negotiation
and/or the interpretation of this agreement or any related agreements, the
preparation of documents relating thereto, perfecting any security interest or
lien granted thereby, or enforcing any of our obligations to you arising under
this or any other agreement between us, regardless of whether litigation is
commenced. In addition, we will reimburse you for any out- of-pocket expenses
incurred by you in managing our account, including any costs for wire transfers
and the costs of checks returned for insufficient funds. If you elect, you may
treat the amount of any such expense as a loan to us and add the amount to our
loan account with you.
F. This agreement shall bind and inure to the benefit of you and us and
your and our respective successors and assigns. This agreement, and all
assignments of collateral shall be construed pursuant to the laws of the State
of Minnesota. We hereby consent to the jurisdiction of the state and federal
courts located in Hennepin County, Minnesota and agree that any dispute arising
out of this agreement or any agreement delivered in connection herewith shall be
venued in Hennepin County, Minnesota. We hereby further waive any right to a
jury trial and agree that all disputes arising hereunder shall be tried by the
court sitting without a jury.
SECTION VIII. TERMINATION
We understand that this Credit Agreement represents a discretionary
line of credit and that you may refuse to make an advance hereunder at your
discretion. In addition, we understand that you may at your election make a
demand for amounts due hereunder at any time even though the provisions herein
are satisfied. We agree to provide you with 30 days' prior written notice of our
election to terminate this agreement and that any termination by us shall be
subject to the provisions hereof. Termination by us shall not impair or affect
your rights and our obligations then existing.
ITASCA BUSINESS CREDIT LLC NORTECH FOREST TECHNOLOGIES, INC.
Secured Party Debtor
By ______________________________ By _____________________________
Name: Douglas C. McNeely Name: Samuel D. Garst
Title: Vice President Title: President
EXHIBIT 10.17
SECURITY AGREEMENT
July 30, 1997
BORROWER: Nortech Forest Technologies, Inc. SECURED PARTY: Itasca Business
Credit LLC
ADDRESS: 7600 West 27th St., Suite B11 ADDRESS:
St. Louis Park, MN 55426 Parkdale Plaza, Suite 146
1660 South Highway 100
St. Louis Park, MN 55416-1532
1. SECURITY INTEREST AND COLLATERAL.
To secure the payment and performance of each and every debt, liability
and obligation of every type and description which Borrower may now or at any
time hereafter owe to Secured Party (whether such debt, liability or obligation
now exists or is hereafter created or incurred, and whether it is or may be
direct or indirect, due or to become due, absolute or contingent, primary or
secondary, liquidated or unliquidated, or joint, several or joint and several,
including all obligations owed to the Secured Party by the Borrower, pursuant to
the Financing Agreement of even date herewith between the Borrower and the
Secured Party (the "Financing Agreement") and evidenced by the Revolving Note
and Term Note, if any, payable by the Borrower to the order of the Secured Party
of even date herewith (the "Note"); all such debts, liabilities and obligations
being herein collectively referred to as the "Obligations"), Borrower hereby
grants Secured Party a security interest (herein called the "Security Interest")
in the following property (herein called the "Collateral"):
(a) ACCOUNTS, CONTRACT RIGHTS AND OTHER RIGHTS TO PAYMENT:
Each and every right of Borrower to the payment of
money, whether such right to payment now exists or hereafter arises,
whether such right to payment arises out of a sale, lease or other
disposition of goods or other property by Borrower, out of a rendering
of services by Borrower, out of a loan by Borrower, out of the
overpayment of taxes or other liabilities of Borrower, or otherwise
arises under any contract or agreement, whether such right to payment
is or is not already earned by performance, and howsoever such right to
payment may be evidenced, together with all other rights and interests
(including all liens and security interests) which Borrower may at any
time have by law or agreement against any account debtor or other
obligor obligated to make any such payment or against any of the
property of such account debtor or other obligor; all including but not
limited to all present and future debt instruments, chattel papers,
accounts and contract rights of Borrower.
(b) INVENTORY:
All inventory of Borrower, wherever located, whether
now owned or hereafter acquired.
(c) EQUIPMENT:
All equipment of Borrower, wherever located, whether
now owned or hereafter acquired, including but not limited to: office
and shop equipment.
<PAGE>
(d) GENERAL INTANGIBLES:
All general intangibles of Borrower, whether now
owned or hereafter acquired, including, but not limited to, all tax
refunds, applications for patents, copyrights and trademarks, together
with all substitutions and replacements for any of the foregoing
property and proceeds of any and all of the foregoing property and, in
the case of all tangible Collateral, together with (i) all accessories,
attachments, parts, equipment, accessions and repairs now or hereafter
attached or affixed to or used in connection with any such goods, and
(ii) all warehouse receipts, bills of lading and other documents of
title now or hereafter covering such goods.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Borrower represents, warrants and agrees that:
(a) Borrower is a corporation.
(b) The Collateral will be used primarily for business.
(c) If any part or all of the tangible Collateral will
become so related to particular real estate as to
become a fixture, the real estate concerned is:
and the name of the record owner is:_____________________________
or if left blank, at the address of Borrower shown at the
beginning of this Agreement. Borrower's records concerning its
accounts and contract rights are kept at ________________________
_________________________________________________________________
or, if left blank, at Borrower's chief place of business.
3. ADDITIONAL REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Borrower represents, warrants and agrees that:
(a) Borrower has (or will have at the time Borrower acquires
rights in Collateral hereafter arising) absolute title to each
item of Collateral free and clear of all security interests,
liens and encumbrances (except the Security Interest and
except as otherwise disclosed in the Financing Agreement), and
will defend the Collateral against all claims or demands of
all persons other than Secured Party. Borrower will not sell
or otherwise dispose of the Collateral or any interest therein
without the prior written consent of Secured Party, except
that, until the occurrence of an Event of Default and the
revocation by Secured Party of Borrower's right to do so,
Borrower may sell any inventory constituting Collateral to
buyers in the ordinary course of business. This Agreement has
been duly and validly authorized by all necessary corporation
action.
(b) Borrower will not permit any tangible Collateral to be located
in any state (and, if county filing is required, in any
county) in which a financing statement covering such
Collateral is required to be, but has not in fact been, filed
in order to perfect the Security Interest.
(c) Each right to payment and each instrument, document, chattel
paper and other agreement constituting or evidencing
Collateral is (or will be when arising in the ordinary course
<PAGE>
of business) of the account debtor or other obligor named
therein or in Borrower's records pertaining thereto as being
obligated to pay such obligation. Borrower will neither agree
to any material modification or amendment nor agree to any
cancellation of any such obligation without Secured Party's
prior written consent and will not subordinate any such right
to payment to claims of other creditors of such account debtor
or other obligor.
(d) Borrower will (i) keep all tangible Collateral in good repair,
working order and condition, normal depreciation excepted, and
will, from time to time, replace any worn, broken or defective
parts thereof; (ii) promptly pay all taxes and other
governmental charges levied or assessed upon or against any
Collateral or upon or against the creation, perfection or
continuance of the Security Interest; (iii) keep all
Collateral free and clear of all security interest, liens and
encumbrances except the Security Interest; (iv) at all
reasonable times, permit Secured Party or its representatives
to examine or inspect any Collateral, wherever located, and to
examine, inspect and copy Borrower's books and records
pertaining to the Collateral and its business and financial
condition; (v) keep accurate and complete records pertaining
to the Collateral and pertaining to Borrower's business and
financial condition and submit to Secured Party such periodic
reports concerning the Collateral and pertaining to Borrower's
business and financial conditions as Secured Party may from
time to time reasonably request; (vi) promptly notify Secured
Party of any loss of or material damage to any Collateral or
of any adverse change, known to Borrower, in the prospect of
payment of any sums due on or under any instrument, chattel
paper, account or contract right constituting Collateral;
(vii) if Secured Party at any time so requests (whether the
request is made before after the occurrence of an Event of
Default), promptly deliver to Secured Party any instrument,
document or chattel paper constituting Collateral, duly
endorsed or assigned by Borrower; (viii) at all times keep all
tangible Collateral insured against risks of fire (including
so-called extended coverage), theft , collision (in case of
Collateral consisting of motor vehicles) and such other risks
and in such amounts as Secured Party may reasonably require,
with any loss payable to Secured Party to the extent of its
interest; (ix) from time to time execute such financing
statements as Secured Party may reasonably require in order to
perfect the Security Interest and, if any Collateral exists of
a motor vehicle, execute such documents as may be required to
have the Security Interest properly noted on a certificate of
title; (x) pay when due or reimburse Secured Party on demand
for all costs of collection of any of the Obligations and all
their out-of-pockets expenses (including in each case all
reasonable attorneys' fees) incurred by Secured Party in
connection with the creating, perfection, satisfaction or
enforcement of the Security Interest or the creation,
continuance or enforcement of this Agreement or any or all of
the Obligation; and Borrower will indemnify and saved Secured
Party harmless from all loss, costs, damage, liability or
expense, including reasonable attorney fees that it may
sustain or incur by reason of defending or protecting the
Security Interest or the priority thereof, or in the
prosecution or defense of any action or proceeding concerning
any matter growing out of or connected with this Agreement
and/or the obligations and/or the Collateral; (xi) execute,
deliver or endorse any and all instruments, documents,
assignments, security agreements and other agreements, and
writings which Secured Party may at any time reasonably
request in order to secure, protect, perfect or enforce the
Security Interest and Secured party's rights under this
Agreement; (xii) not use or keep any Collateral, or permit it
to be used or kept, for any unlawful purpose or in violation
of any federal, state or local law, statute or ordinance; and
(xiii) not permit any
<PAGE>
tangible Collateral to become part of or to be affixed to any
real property without first assuring to the reasonable
satisfaction of Secured Party that the Security Interest will
be prior and senior to any interest or lien then held or
thereafter acquired by any mortgagee of such real property or
the owner or purchaser of any interest therein. If Borrower at
any time fails to perform or observe any agreement contained
in this Section 3(d), Secured Party may (but need not) perform
or observe such agreement on behalf and in the name, place and
stead of Borrower (or, at Secured Party's option, in Secured
Party's own name) and may (but need not) take any and all
other actions which Secured Party may reasonable deem
necessary to cure or correct such failure (including, without
limitation, the payment of taxes, the satisfaction of security
interest, liens, or encumbrances, the performance of
obligations under contracts or agreements with account debtor
or other obligors, the procurement and maintenance of
insurance, the execution of financing statements, the
endorsement of instruments, and the procurement of repairs,
transportation or insurance); and except to the extent that
the effect of such payment would be to render any loan or
forbearance of money usurious or otherwise illegal under any
applicable law, Borrower shall thereupon pay Secured Party on
demand the amount of all monies expended and all costs and
expenses (including reasonable attorneys' fees) incurred by
Secured Party in connection with or as a result of Secured
Party's performing or observing such agreements or taking such
actions, together with interest thereon from the date expended
or incurred by Secured Party at the highest rate then
applicable to any of the Obligations. To facilitate the
performance or observance by Secured Party of such agreements
of Borrower, Borrower hereby irrevocably appoints (which
appointment is coupled with an interest) Secured Party, or its
delegate, as the attorney-in-fact of Borrower with the right
(but not the duty) from time to time to create, prepare,
complete, execute, deliver, endorse or file, in the name and
on behalf of Borrower, any and all instruments, documents,
financing statements, applications for insurance and other
agreements and writings required to be obtained, executed,
delivered or endorsed by Borrower under this Section 3 and
Section 4.
(e) Borrower will pay promptly when due all indebtedness,
liability, or obligation secured hereby with interest.
4. LOCK BOX, COLLATERAL ACCOUNT.
If Secured Party so requests at any time (whether before or after the
occurrence of an Event of Default), Borrower will direct each of its account
debtors to make payments due under the relevant account or chattel paper
directly to a special lock box to be under the control of Secured Party.
Borrower hereby authorizes and directs Secured Party to deposit into a special
collateral account to be established and maintained with Secured Party all
checks, drafts and cash payments received in said lock box. All deposits in said
collateral account shall constitute proceeds of Collateral and shall not
constitute payment of any Obligation. At its option, Secured Party may, at any
time, apply finally collected funds on deposit in said collateral account to the
payment of the Obligations in such order of application as Secured Party may
determine, or permit Borrower to withdraw all or any part of the balance on
deposit into said collateral account, all payments on accounts and chattel paper
received by it. All such payment shall be delivered to Secured Party in the form
received (except for Borrower's endorsement where necessary). Until so
deposited, all payments on accounts and chattel paper received by Borrower shall
be held in trust by Borrower for and as the property of Secured Party and shall
not be commingled with any funds or property of Borrower.
<PAGE>
5. COLLECTION RIGHTS OF SECURED PARTY.
Notwithstanding Secured Party's rights under Section 4 with respect to
any and all debt instruments, chattel papers, accounts, and other rights to
payment constituting Collateral (including proceeds), Secured Party may, at any
time (both before and after the occurrence of an Event of Default), notify any
account debtor, or any other person obligated to pay any amount due, that such
chattel paper, account, or other right to payment has been assigned or
transferred to Secured Party for security and shall be paid directly to Secured
Party. If Secured Party so requests at any time, Borrower will so notify such
account debtors and other obligors in writing and will indicate on all invoices
to such account debtors or other obligors, that the amount due is payable
directly to Secured Party. At any time after Secured Party or Borrower gives
such notice to an account debtor or other obligor, Secured Party may (but need
not), in its own name or in Borrower's name, demand, sue for, collect or receive
any money or property at any time payable or receivable on account of, or
securing, any such chattel paper, account, or other right to payment, or grant
any extension to, make any compromise or settlement with or otherwise agree to
waive, notify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor.
6. ASSIGNMENT OF INSURANCE.
Borrower hereby assigns to Security Party, as additional security for
the payment of the Obligations, and all moneys (including but not limited to
proceeds of insurance and refunds of unearned premiums) due or to become due
under, and all other rights of Borrower under or with respect to, any and all
policies of insurance covering the Collateral, and Borrower hereby directs the
issuer of any such policy to pay any such monies directly to Secured Party. Both
before and after the occurrence of an Event of Default, Secured Party may (but
need not), in its own name or in Borrower's name, execute and deliver proofs of
claim, receive all such monies, endorse checks and other instruments
representing payment of such monies, and adjust, litigate, compromise or release
any claim against the issuer of any such policy.
7. EVENTS OF DEFAULT.
Each of the following occurrences shall constitute an event of default
under this Agreement (herein called "Event of Default"): (i) Borrower shall fail
to pay any or all of the Obligations when due or (if payable on demand) on
demand, or shall fail to observe or perform any covenant or agreement herein
binding on it; (ii) any representation or warranty by Borrower set forth in this
Agreement or made to Secured Party in any financial statements or reports
submitted to Secured Party by or on behalf of Borrower shall prove materially
false or misleading; (iii) Borrower or any guarantor of any Obligation shall (A)
fail to conduct its business substantially as now conducted; or (B) be or become
insolvent (however defined); or (C) the entry of any judgment against any
debtor; or (D) file or have filed against it, voluntarily or involuntarily, a
petition in bankruptcy or for reorganization under the United States Bankruptcy
Code; or (E) initiate or have initiated against it voluntarily or involuntarily,
any act, process of proceeding under any insolvency law or other statute or law
providing for the modification or adjustment of the rights of creditors; or (F)
Borrower shall be dissolved or liquidated; or (iv) Secured Party shall in good
faith believe that the prospects of due and punctual payment of any or all of
the Obligations is impaired.
8. REMEDIES UPON EVENT OF DEFAULT.
<PAGE>
Upon the occurrence of an Event of Default under Section 7 and at any
time thereafter, Secured Party may exercise any one or more of the following
rights and remedies: (i) declare all unmatured Obligations to be immediately due
and payable, and the same shall thereupon be immediately due and payable,
without presentment or other notice or demand; (ii) exercise and enforce any or
all rights and remedies available upon default to a Secured Party under the
Uniform Commercial Code, including but not limited to the right to take
possession of any Collateral, proceeding without judicial process or by judicial
process (without a prior hearing or notice thereof, which Borrower hereby
expressly waives), and the right to sell, lease or otherwise dispose of any or
all of the Collateral, and in connection therewith, Secured Party may require
Borrower to assemble the Collateral and make it available to Secured Party at a
place to be designated by Secured Party which is reasonably convenient to both
parties, and if notice to Borrower of any intended disposition of collateral or
any other intended action is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given (in the manner specified
in Section 10 at least ten calendar days prior to the date of intended
disposition of other action; (iii) exercise or enforce any or all other rights
or remedies available to Secured Party by law or agreement against the
Collateral, against Borrower or against any other person or property.
Notwithstanding the foregoing, the Borrower acknowledges and agrees that all
Obligations owed by the Borrower to the Secured Party are payable upon demand
and that the Secured Party can make a demand at any time in its absolute
discretion even if the Borrower is then in compliance with all of its
obligations to the Secured Party.
9. OTHER PERSONAL PROPERTY.
Unless at the time Secured Party takes possession of any tangible
Collateral, or within seven days thereafter, Borrower gives written notice to
Secured Party's of the existence of any goods, paper or the property of
Borrower, not affixed to or constituting a part of such Collateral, but which
are located or found upon or within such Collateral, describing such property,
Secured Party shall not be responsible or liable to Borrower for any action
taken or omitted by or on behalf of Secured Party with respect to such property
without actual knowledge of the existence of any such property or without actual
knowledge that it was located or to be found upon or within such Collateral.
10. MISCELLANEOUS.
This Agreement does not contemplate a sale of accounts, contract rights
or chattel paper, and, as provided by law, Borrower is entitled to any surplus
and shall remain liable for any deficiency. This Agreement can be waived,
modified, amended, terminated or discharged, and the Security Interest can be
released, only explicitly in a writing signed by Secured party. A waiver signed
by Secured Party shall be effective only in the specific instance and for the
specific purpose given. Mere delay or failure to act shall not preclude the
exercise or enforcement of any of Secured Party's rights or remedies. All rights
and remedies of Secured Party shall be cumulative and may be exercised
singularly or concurrently, at Secured Party's option, and the exercise or
enforcement of any one such right to remedy shall neither be a condition to nor
bar the exercise or enforcement of any other. All notices to be given to
Borrower shall be deemed sufficiently given if delivered or mailed by registered
or certified mail, postage prepaid, to Borrower at its address set forth above
or at the most recent address shown on Secured Party's records. Secured Party's
duty of care with respect to collateral in its possession (as imposed by law)
shall be deemed fulfilled if Secured Party exercises reasonable care in
physically safekeeping such Collateral or, in the case of Collateral in the
custody or possession of a bailee or other third person, exercises reasonable
care in the selection of the bailee or other third person, and Secured Party
need not otherwise preserve, protect, insure or care for any Collateral. Secured
Party shall not be obligated to preserve any rights Borrower may have against
prior parties, to realize on the Collateral at all or in any particular manner
or order, or to apply any cash proceeds of Collateral in any particular order of
application. This Agreement shall be binding upon and inure to the benefit of
Borrower and Secured Party and their
<PAGE>
respective heirs, representatives, successors and assigns and shall take effect
when signed by Borrower and delivered to Secured Party, and Borrower waives
notice of Secured Party's acceptance hereof. Except to the extent otherwise
required by-law, this agreement shall be governed by the internal laws of the
State of Minnesota. If any provision or application of this Agreement is held
unlawful or unenforceable in any respect, such illegality or unenforceability
shall not affect other provisions or applications which can be given effect, and
this Agreement shall be construed herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Obligations. If this Agreement is signed by more than one person
as Borrower, the term "Borrower" shall refer to each of them separately and to
both or all of them jointly; all such persons shall be bound both severally and
jointly with the other(s); and the Obligations shall include all debts,
liabilities and obligations owed to Secured Party by a Borrower solely or by
both or several or all Borrowers jointly or jointly and severally, and all
property described in Section 1 shall be included as part of the Collateral,
whether it is owned jointly by both or all Borrowers or is owned in whole or in
part by one (or more) of them.
11. OTHER AGREEMENT.
Borrower and Secured Party have entered into the Financing Agreement
pursuant to which the Secured Party may, in its election, extend financial
accommodations to the Borrower. The loans will be evidenced by the Note. The
terms of said Financing Agreement and Note are incorporated herein by reference
and made a part hereof, and any default under or misrepresentation contained in
the Financing Agreement or Note shall be an event of default hereunder.
ITASCA BUSINESS CREDIT LLC NORTECH FOREST TECHNOLOGIES, INC., Borrower
Secured Party
By: _____________________________
By: ___________________________ Name: Samuel D. Garst
Name: Douglas C. McNeely Title: President
Title Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 56,004
<SECURITIES> 0
<RECEIVABLES> 61,431
<ALLOWANCES> 0
<INVENTORY> 33,049
<CURRENT-ASSETS> 177,883
<PP&E> 69,281
<DEPRECIATION> 35,211
<TOTAL-ASSETS> 215,203
<CURRENT-LIABILITIES> 36,819
<BONDS> 0
17,479
0
<COMMON> 1,747,880
<OTHER-SE> 1,821,457
<TOTAL-LIABILITY-AND-EQUITY> 215,203
<SALES> 145,481
<TOTAL-REVENUES> 145,481
<CGS> 49,432
<TOTAL-COSTS> 132,589
<OTHER-EXPENSES> 101,917
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (89,025)
<INCOME-TAX> 0
<INCOME-CONTINUING> (89,025)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (89,025)
<EPS-PRIMARY> (.05)
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