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, 1998
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.
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(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
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(Address of Principal Executive Offices, Including Zip Code)
(612) 922-2520
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(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, 1998, the Registrant had 1,669,130 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, 1997 and March 31,
1998 and the related statements of operations and cash flows for the three
months ended March 31, 1998 and 1997, 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, 1997.
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.
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 12,497 $ 14,298
Accounts receivable 133,035 215,419
Inventories
Finished goods 15,316 23,663
Raw materials 47,463 57,361
Prepaid expenses 4,623 5,356
--------- ---------
Total current assets 212,934 316,097
--------- ---------
Long-term assets:
Equipment 66,019 66,019
Accumulated depreciation (36,787) (34,075)
--------- ---------
29,232 31,944
--------- ---------
Other assets:
Organizational costs, net of accumulated
amortization of $628 and $617 during
1998 and 1997, respectively 0 0
Patent costs, net of accumulated
amortization of -0- and -0- during
1998 and 1997, respectively (4) -0-
Other assets 5,149 5,149
--------- ---------
5,149 5,149
--------- ---------
$ 247,315 $ 353,190
========= =========
</TABLE>
(1) See Note 1 to the financial statements.
(4) See Note 4 to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Line of credit $ 99,013 $ 151,880
Accounts payable - trade 91,873 70,847
Note payable - other 158,788 -0-
Accrued expenses 10,380 19,156
----------- -----------
Total current liabilities 360,054 241,883
----------- -----------
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, 1,669,130 shares at March
31, 1998 and 1,762,880 shares at December
31, 1997 16,691 17,629
Paid in capital 1,693,845 1,842,907
Accumulated deficit (1,823,275) (1,749,229)
----------- -----------
Total stockholders' equity (112,739) 111,307
----------- -----------
$ 247,315 $ 353,190
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
1998 1997
----------- -----------
Sales $ 86,645 $ 53,551
Cost of sales 35,281 24,150
----------- -----------
Gross profit 51,364 29,401
----------- -----------
Operating expenses:
Administrative 81,263 113,683
Sales and marketing 36,538 53,854
Research and development -0- 10,209
----------- -----------
117,801 177,746
----------- -----------
Net loss on operations (66,437) (148,435)
Other income and expense
Interest income 143 -0-
Interest expense (7,753) (320)
----------- -----------
Net loss $ (74,047) $ (148,665)
=========== ===========
Net loss per common share $ (.04) $ (.09)
=========== ===========
Outstanding shares of
common stock 1,669,130 1,654,130
=========== ===========
(4) See Note 4 to the financial statements.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss (4) $ (74,047) $(148,665)
Adjustments to reconcile net loss to
net cash flows from operating activities
Amortization -- 31
Depreciation (4) 2,712 8,858
Note payable issued for services 7,500 --
Accounts receivable 82,384 10,815
Inventories 18,245 (2,097)
Accounts payable 21,026 (40,377)
Accrued expenses (7,488) (10,040)
Other 735 (1,255)
--------- ---------
Net cash flows from operating activities 51,067 (182,730)
--------- ---------
Cash flows from investing activities:
Purchase of long-term assets -0- (1329)
Patent costs (4) -0- -0-
--------- ---------
Net cash flows from investing activities -0- (1,329)
--------- ---------
Cash flows from financing activities:
Bank line-of-credit (52,868) -0-
Sale of stock for cash -0- 200,000
Payment of long-term debt -0- -0-
Note payable - related party -0- -0-
Note payable - other -0- -0-
--------- ---------
Net cash flows from financing activities (52,868) 200,000
--------- ---------
Net increase (decrease) in cash (1,801) 15,941
Cash, beginning of period 14,298 34,577
--------- ---------
Cash, end of period $ 12,497 $ 50,518
========= =========
</TABLE>
(4) See Note 4 to financial statements.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 (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, 1997 audited financial statements and
the accompanying notes thereto. Although audited, the balance sheet at
December 31, 1997 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, 1998, the Company sold no Common Stock.
4. 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.
5. GOING CONCERN
As stated in Note 18 of the Company's audited financial statements for the
year ended December 31, 1997, 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 March 31, 1998, the Company has accumulated losses of $74,047 for the
first three months of 1998 for a total loss accumulated loss of
$1,823,275.
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
MANAGEMENT DISCUSSION & ANALYSIS
THREE MONTHS ENDED MARCH 31, 1998 (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, 1997.
GENERAL
The Company manufactures and markets TREE GUARD(R), a proprietary, ready-to-use
product that the Company developed to deter deer and other 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 two alterate
brands labeled as "THIS 1 WORKS" DEER REPELLENT and the "Grants Repels Deer"
Deer Repellent. TREE GUARD, THIS 1 WORKS, AND GRANT'S 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:
Net sales for the first quarter ended March 31, 1998 were $86,645 compared to
$53,551 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 limited. While distribution agreements
are now in place with several relatively new distributors with sales records
less than one year, 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 1998 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 second quarter ended March 31, 1998, gross profit was $51,364, or 59.3%
of sales, compared to $29,401, or 54.9% of sales, during the same period last
year. The increase in gross profit, as a percentage of sales, was due primarily
to production efficiencies. Sales to Private brand products have lower margins
than the Company's own brand. Increased sales of private brand products may
lower gross profit margins.
Administrative Expense. During the first quarter ended March 31, 1998,
administrative expense was $81,263 compared to $113,683 during the first quarter
last year. The decrease was primarily due to write off of patent costs of
$37,159 during the first quarter of 1997.
Sales and Marketing Expense. During the First quarter ended March 31, 1998,
sales and marketing expense was $36,538 compared to $83,157 during the first
quarter last year. The decrease was due to decreased advertising, public
relations, trade show, travel and other marketing expenses.
Research and Development Expense. During the first quarter ended March 31, 1998,
research and development expense was $0 compared to $10,209 for the first
quarter last year. The Company has chosen to spend its limited funds on sales
and marketing rather than continued research and development at this time.
<PAGE>
Interest Expense. During the first quarter ended March 31, 1998, interest
expense was $7,753 compared to $320 during the first quarter last year. The
increase in interest expense was due to the Company offering dating to its
customers in the fall of 1997. As is customary in the lawn and garden industry
delayed payment terms are offered in the fall for spring sales. Sales made in
the fall of 1997 are then due May 10, 1998.
Net Loss. For the reasons discussed above, the Company incurred a net loss of
$74,048 or $.04 per share, for the first quarter ended March 31, 1998, compared
to a net loss of $148,665, or $.09 per share, during the first quarter last
year.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1998, the Company had current assets of $212,933, current
liabilities of $360,053, and negative working capital of $112,740 compared to
current assets of $97,747, current liabilities of $46,247 and working capital of
$51,500 on March 31, 1997. The decrease in working capital was primarily due to
a settlement with a former executive officer for $158,788.
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 1998 or 1999.
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.
Samuel D. Garst and Nortech Forest Technologies, Inc. settled all claims that
have been made or could have been made in a complaint dated February 9, 1998.
The Company agreed to pay Garst $157,500 plus interest on the outstanding
balance, in consecutive monthly installments of $7,000 commencing April 1, 1998.
See note 10.6 of the Company's 1997 10K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits.
For the quarter ended March 31, 1998, no exhibits are submitted.
b) Form 8-K
For the quarter ended March 31, 1998, 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: 5-12-98 By: /s/ Calvin E. Blanchard
---------------- ------------------------------------
Calvin E. Blanchard
Chief Operating Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 12,497
<SECURITIES> 0
<RECEIVABLES> 133,035
<ALLOWANCES> 0
<INVENTORY> 62,779
<CURRENT-ASSETS> 212,934
<PP&E> 66,019
<DEPRECIATION> 36,787
<TOTAL-ASSETS> 247,315
<CURRENT-LIABILITIES> 360,054
<BONDS> 0
0
0
<COMMON> 16,691
<OTHER-SE> (129,430)
<TOTAL-LIABILITY-AND-EQUITY> 247,315
<SALES> 86,645
<TOTAL-REVENUES> 86,645
<CGS> 35,281
<TOTAL-COSTS> 35,281
<OTHER-EXPENSES> 117,801
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,610
<INCOME-PRETAX> (74,047)
<INCOME-TAX> 0
<INCOME-CONTINUING> (74,047)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (74,047)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
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