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 SEPTEMBER 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 September 30, 1997, the Registrant had 1,762,880 shares of $.01 par value
Common Stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes ___ No _X_.
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
Nortech Forest Technologies, Inc., a Delaware corporation (the "Registrant" or
"Company") files herewith balance sheets as of December 31, 1996 and September
30, 1997 and the related statements of operations and cash flows for the nine
months ended September 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
September 30, December 31,
1997 1996
--------- ---------
(Unaudited) (Note)
Current assets:
Cash $ 5,174 $ 34,578
Accounts receivable 195,845 --
Inventories
Finished goods 7,670 4,771
Raw materials 5,908 32,178
Prepaid expenses 21,966 4,928
--------- ---------
Total current assets 236,563 76,455
Long-term assets:
Equipment 72,477 78,155
Accumulated depreciation (38,033) (37,750)
--------- ---------
34,444 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
--------- ---------
$ 274,257 $ 158,560
========= =========
(1) See Note 1 to the financial statements.
(4) See Note 4 to the financial statements.
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statement at that date, but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statemements.
<PAGE>
September 30, December 31,
1997 1996
----------- -----------
(Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable - trade $ 51,517 $ 76,958
Note payable - other 89,833 30,000
Accrued expenses 11,205 19,756
----------- -----------
Total current liabilities 152,555 126,714
----------- -----------
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, 1,762,880 shares at September
31, 1997 and 1,509,900 shares at December
31, 1996 17,629 15,099
Paid in capital 1,842,907 1,432,109
Deferred Compensation (6,250) 0
Accumulated deficit (1,732,584) (1,415,362)
----------- -----------
Total stockholders' equity 121,702 31,846
----------- -----------
$ 274,257 $ 158,560
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 174,521 $ 103,343 $ 373,554 $ 173,627
Cost of sales 60,653 39,277 134,235 72,675
----------- ----------- ----------- -----------
Gross profit 113,869 64,066 239,319 100,952
----------- ----------- ----------- -----------
Operating expenses:
Administrative 87,801 56,149 250,229 193,894
<PAGE>
<S> <C> <C> <C> <C>
Sales and marketing 93,054 27,606 230,065 110,812
Research and development 11,143 5,594 30,564 35,980
----------- ----------- ----------- -----------
191,998 89,349 510,858 340,686
----------- ----------- ----------- -----------
Net loss on operations (78,129) (25,283) (271,539) (239,734)
Other income and expense
Interest expense (1,402) (14,517) (1,722) (36,409)
Write-off of patent costs (4) 0 0 (38,409) 0
Loss on disposal of equipment
& Other(4) 0 7,200 (5,551) 7,200
----------- ----------- ----------- -----------
Net loss $ (79,532) $ (32,600) $ (317,222) $ (268,943)
=========== =========== =========== ===========
Net loss per common share $ (0.05) $ (0.03) $ (0.19) $ (0.25)
=========== =========== =========== ===========
Outstanding shares of
common stock 1,752,119 1,096,208 1,698,828 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
Nine months ended September 30,
-------------------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Net loss (4) $(317,222) $(235,073)
Adjustments to reconcile net loss to
net cash flows from operating activities
Amortization 41 237
Depreciation (4) 8,858 7,118
Accounts receivable (195,845) (1,863)
Inventories 23,371 8,275
Accounts payable (25,441) 17,460
Accrued expenses (8,551) 1,876
Other 11,087 (7,512)
Loss on disposal of equipment 5,551 0
Write-off of Patent costs 38,409 0
Options & Warrants for Services 18,125 0
--------- ---------
Net cash flows from operating activities (441,617) (205,939)
--------- ---------
Cash flows from investing activities:
Purchase of long-term assets (8,448) (460)
<PAGE>
Patent costs (4) 0 (2,588)
--------- ---------
Net cash flows from investing activities (8,448) (2,811)
--------- ---------
Cash flows from financing activities:
Bank line-of-credit 89,833 (28,000)
Sale of stock for cash 335,828 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 420,661 181,883
--------- ---------
Net increase (decrease) in cash (29,404) (26,867)
Cash, beginning of period 34,578 30,919
--------- ---------
Cash, end of period $ 5,174 $ 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 SEPTEMBER 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.
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
<PAGE>
93,250 shares of Common Stock at $1.60 per share for $150,000 in cash
proceeds. In the quarter ended September 30, 1997, the Company sold an
investor 15,000 shares of Common Stock at $1.60 per share for $24,000
in cash proceeds. In connection with these sales of Common Stock, the
Company issued the three investors three-year warrants to purchase
40,000, 30,000, and 4,800 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.
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 September 30, 1997, the Company has
accumulated losses of $317,222 for the first 9 months of 1997 for a
total loss accumulated loss of $1,732,584.
NORTECH FOREST TECHNOLOGIES, INC.
MANAGEMENT DISCUSSION & ANALYSIS
THREE MONTHS ENDED SEPTEMBER 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
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.
Subsaquent to the quarter ended September 30, 1997 the company signed a second
agreement to manufacture substantially the same product as TREE GUARD, which
will be packaged and sold under the Grant's brand labeled as "GRANT'S REPELS
DEER". TREE GUARD, THIS 1 WORKS, and GRANTS REPELS DEER 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:
<PAGE>
Net sales for the three months and nine months ended September 30, 1997 were
$174,521 and $373,554, respectively, compared to $103,343 and $173,627 for the
respective periods last year. Although sales during the third 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
recently appointed, growing network of distributors. The company now has
distribution in all areas except certain Southern States. While distribution
agreements are now in place with several major new distributors for the fall
1997 season, sales have been limited by the newness of TREE GUARD in the market.
In the future sales may be limited by the need for capital to finance sales
programs common within the trade and the highly competitive market for animal
repellents.
Although the Company has expanded its distribution significantly during the last
several quarters, the degree to which sales can be expanded in the future will
be largely subject to the Company's ability to fund sales and marketing
activities. (see Liquidity and Capital Resources).
Gross Profit and Gross Profit Margin:
For the three months and nine months ended September 30, 1997, gross profit was
$113,869 and $239,319, or 65.2% and 64% of sales, respectively, compared to
$64,066 and $100,952, or 62.0% and 58.1% 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.
Administrative Expense. During the three months and nine months ended September
30, 1997, administrative expense was $87,801 and $250,229, respectively,
compared to $56,149 and $193,894 for the respective periods last year. This
increased cost was largely related to public relations expenses for the 9 months
which have totalled $43,264. Public relations expenditures are included in
Administrative Expenses to provide historical comparisons and will likely be
transferred to Sales and Marketing.
Sales and Marketing Expense. During the three months and nine months ended
September 30, 1997, sales and marketing expense was $93,054 and $230,065,
respectively, compared to $27,606 and $101,812 for the respective periods last
year. The increase was due to increased printing, advertising, trade show,
travel, and other marketing expenses related to the Company's 1997 TREE GUARD
sales and marketing campaign for the fall selling season of 1997. Sales and
marketing expenditures were limited in 1996 by the shortage of working capital.
(See Administrative Expense.)
Research and Development Expense. During the three months and nine months ended
September 30, 1997, research and development expense was $11,143 and $30,564,
respectively, compared to $5,594 and $35,980 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 nine months ended September 30,
1997, interest expense was $1,402 and $1,722 respectively, compared to $14,517
and $36,409 for the respective periods last year. The decrease in interest
expense was due to the Company repaying substantially all of its
interest-bearing obligations during 1996 and early 1997. Interests costs were
incurred late in the quarter on the company's line of credit secured by its
accounts receivables. The company has deferred payment programs with its
distributors which are common in the trade. Payment on sales during the period
were deferred until November to meet competitive trade terms of sale.
Net Loss. For the reasons discussed above, the Company incurred a net loss for
the three months and nine months ended September 30, 1997 of $79,532 and
$317,222, or $.05 and $.14 per share, respectively, compared to a net loss of
$32,600 and $268,943, or $.03 and $.25 per share, for the respective periods
last year.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1997, the Company had current assets of $236,563, current
liabilities of $152,555, and working capital of $84,008 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 accounts receivable and decreases in accounts payable and
accrued expenses.
During the quarter ended September 30, 1997, the Company sold an investor 15,000
shares of Common Stock at $1.60 per share for $24,000 in cash proceeds. In
connection with the sale of Common Stock, the Company issued the investor a
three-year warrant to purchase 4,800 shares of Common Stock at an exercise price
of $1.60 per share. 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
$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.
<PAGE>
Since April 1996, the Company has raised $714,000 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.
During the quarter ended September 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 27. Financial Data Schedule (filed with electronic version only)
b) Form 8-K
For the quarter ended September 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: 11/14/97 By: /s/ Samuel D. Garst
Samuel D. Garst, Chief Executive
Officer, Principal Executive Officer and
Principal Financial and Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,174
<SECURITIES> 0
<RECEIVABLES> 195,845
<ALLOWANCES> 0
<INVENTORY> 13,578
<CURRENT-ASSETS> 236,563
<PP&E> 72,477
<DEPRECIATION> 38,033
<TOTAL-ASSETS> 271,007
<CURRENT-LIABILITIES> 152,555
<BONDS> 0
17,629
0
<COMMON> 0
<OTHER-SE> 1,842,907
<TOTAL-LIABILITY-AND-EQUITY> 121,702
<SALES> 174,521
<TOTAL-REVENUES> 174,521
<CGS> 60,653
<TOTAL-COSTS> 153,707
<OTHER-EXPENSES> 98,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,402)
<INCOME-PRETAX> (79,532)
<INCOME-TAX> 0
<INCOME-CONTINUING> (79,532)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (79,532)
<EPS-PRIMARY> .05
<EPS-DILUTED> .04
</TABLE>
