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, 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.
(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, 1998, the Registrant had 2,161,100 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 June 30,
1998 and the related statements of operations and cash flows for the six months
ended June 30, 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
June 30, December 31,
1998 1997
--------- ---------
(Unaudited)
Current assets:
Cash $ 51,434 $ 14,298
Accounts receivable 125,224 215,419
Stock subscription receivable 120,000 -0-
Inventories
Finished goods 3,615 23,663
Raw materials 56,023 57,361
Prepaid expenses 5,610 5,356
--------- ---------
Total current assets 361,906 316,097
--------- ---------
Long-term assets:
Equipment 66,019 66,019
Accumulated depreciation (39,498) (34,075)
--------- ---------
26,521 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 3,250 5,149
--------- ---------
3,250 5,149
--------- ---------
$ 391,677 $ 353,190
========= =========
(1) See Note 1 to the financial statements.
(4) See Note 4 to the financial statements.
<PAGE>
June 30, December 31,
1998 1997
----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Line of credit $ 87,585 $ 151,880
Accounts payable - trade 81,719 70,847
Note payable - other 140,285 -0-
Accrued expenses 14,873 19,156
----------- -----------
Total current liabilities 324,462 241,883
----------- -----------
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, 2,169,100 shares at June
30, 1998 and 1,762,880 shares at December
31, 1997 21,691 17,629
Paid in capital 1,843,772 1,842,907
Accumulated deficit (1,798,248) (1,749,229)
----------- -----------
Total stockholders' equity (67,215) 111,307
----------- -----------
$ 391,677 $ 353,190
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 217,076 $ 145,481 $ 303,720 $ 199,032
Cost of sales 79,581 49,432 $ 114,861 73,582
----------- ----------- ----------- -----------
Gross profit 137,495 96,049 188,859 125,450
----------- ----------- ----------- -----------
Operating expenses:
Administrative 66,499 92,705 147,763 162,428
Sales and marketing 37,802 83,157 74,340 137,011
Research and development -0- 9,212 -0- 19,421
----------- ----------- ----------- -----------
104,311 185,074 222,103 318,860
----------- ----------- ----------- -----------
Net profit (loss) on operations 33,184 (89,025) (33,244) (193,410)
Other income and expense
Interest income 72 -0- 215 -0-
Interest expense (8,237) -0- (15,990) 320
Write-off of patent costs(4) -0- -0- -0- (38,409)
Loss on disposal of equipment(4) -0- -0- -0- (5,551)
----------- ----------- ----------- -----------
Net Income (loss) $ 25,019 $ (89,025) $ (49,019) $ (237,690)
=========== =========== =========== ===========
Net Income (loss) per common share $ .012 $ (.05) $ (.023) $ (.14)
=========== =========== =========== ===========
Outstanding shares of
common stock 2,169,100 1,747,880 2,169,100 1,747,880
=========== =========== =========== ===========
</TABLE>
(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
Six months ended June 30,
-----------------------
1998 1997
--------- ---------
Cash flows from operating activities:
Net loss (4) $ (49,020) $(237,690)
Adjustments to reconcile net loss to
net cash flows from operating activities
Amortization -0- 41
Depreciation (4) 5,423 6,036
Accounts receivable 90,195 (61,401)
Inventories 21,386 3,900
Accounts payable 10,871 (55,307)
Accrued expenses (5,325) (4,588)
Other 1,651 5,654
Loss on disposal of equipment -0- 5,551
Write-off of Patent costs -0- 38,409
Options & Warrants for Services -0- 16,875
Net cash flows from operating activities 75,181 (282,550)
--------- ---------
Cash flows from investing activities:
Purchase of long-term assets -0- (5,252)
Patent costs (4) -0- -0-
--------- ---------
Net cash flows from investing activities -0- (5,252)
--------- ---------
Cash flows from financing activities:
Bank line-of-credit (64,294) -0-
Sale of stock for cash (115,072) 314,228
Payment of long-term debt -0- (5,000)
Note payable - issued for services 7,500 -0-
Note payable - other 133,821 -0-
--------- ---------
Net cash flows from financing activities (38,045) 309,228
--------- ---------
Net increase (decrease) in cash 37,136 21,426
Cash, beginning of period 14,298 34,578
--------- ---------
Cash, end of period $ 51,434 $ 56,004
========= =========
(4) See Note 4 to financial statements.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 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
May 24, 1998 400,000 shares of Nortech stock were sold as part of a
subscription agreement with a note receivable of $120,000.
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 $333,867 in 1997,
$163,795 in 1996 and $542,950 in 1995. As of June 30, 1998, the Company
has accumulated losses of $49,010 for the first six months of 1998 for
a total loss accumulated loss of $1,798,248.
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
MANAGEMENT DISCUSSION & ANALYSIS
SIX MONTHS ENDED JUNE 30, 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 second quarter ended June 30, 1998 were $217,075 compared to
$155,524 for the second quarter 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. 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 June 30, 1998, gross profit was $137,494, or 63.3%
of sales, compared to $96,551, or 62.1% of sales, during the same period last
year. The increase in gross profit, as a percentage of sales, was due primarily
to an increase in credit card sales. 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 second quarter ended June 30, 1998,
administrative expense was $66,449 compared to $113,683 during the second
quarter last year. The decrease was primarily due to increased attention to
lowering expenses.
Sales and Marketing Expense. During the second quarter ended June 30, 1998,
sales and marketing expense was $37,802 compared to $53,854 during the second
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 second quarter ended June 30, 1998,
research and development expense was $0 compared to $9,212 for the second
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 second quarter ended June 30, 1998, interest
expense was $8,165 compared to $320 during the second quarter last year. The
increase in interest expense was due to the Company offering dating to its
customers beginning 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 Gain. For the reasons discussed above, the Company incurred a net gain of
$25,028 or $.01 per share, for the second quarter ended June 30, 1998, compared
to a net loss of $79,648, or $.05 per share, during the second quarter last
year.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 1998, the Company had current assets of $361,906, current
liabilities of $324,462, and working capital of $37,444 compared to current
assets of $177,883, current liabilities of $36,815 and working capital of
$141,064 on June 30, 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 June 30, 1998, no exhibits are submitted.
b) Form 8-K
For the quarter ended June 30, 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: August 13, 1998 By: /s/ Calvin E. Blanchard
--------------- ----------------------------
Calvin E. Blanchard
Chief Operating Officer
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 51,434
<SECURITIES> 0
<RECEIVABLES> 125,224
<ALLOWANCES> 0
<INVENTORY> 59,638
<CURRENT-ASSETS> 361,906
<PP&E> 66,019
<DEPRECIATION> 39,498
<TOTAL-ASSETS> 391,677
<CURRENT-LIABILITIES> 324,462
<BONDS> 0
0
0
<COMMON> 21,691
<OTHER-SE> 45,524
<TOTAL-LIABILITY-AND-EQUITY> 391,677
<SALES> 217,076
<TOTAL-REVENUES> 217,076
<CGS> 79,581
<TOTAL-COSTS> 79,581
<OTHER-EXPENSES> 104,311
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,237
<INCOME-PRETAX> 25,019
<INCOME-TAX> 0
<INCOME-CONTINUING> 25,019
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,019
<EPS-PRIMARY> .01
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