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, 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)
2233 UNIVERSITY AVENUE, SUITE 225
ST. PAUL, MINNESOTA 55114-1696
-------------------------------------------------------------------
(Address of Principal Executive Offices, Including Zip Code)
(651) 645-5454
----------------------------------------------------
(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, 1998, the Registrant had 2,161,000 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 September
30, 1998 and the related statements of operations and cash flows for the nine
months ended September 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.
NORTECH FOREST TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 27,665 $ 14,298
Accounts receivable 175,446 215,419
Inventories
Finished goods 8,260 23,663
Raw materials 32,361 57,361
Prepaid expenses 2,950 5,356
----------- -----------
Total current assets 246,682 316,097
----------- -----------
Long-term assets:
Equipment 66,019 66,019
Accumulated depreciation (42,209) (34,075)
----------- -----------
23,810 31,944
----------- -----------
Other assets:
Organizational costs, net of accumulated
amortization of $628 and $617 during
1998 and 1997, respectively 0 41
Other assets 8,090 5,149
----------- -----------
8,090 5,149
----------- -----------
$ 278,582 $ 353,190
=========== ===========
</TABLE>
(1) See Note 1 to the financial statements.
(4) See Note 4 to the financial statements.
2
<PAGE>
Note: The balance sheet at December 31, 1997 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 statements.
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Line of credit $ 125,072 $ 151,880
Accounts payable - trade 45,660 70,847
Note payable - other 122,553 0
Accrued expenses 15,087 19,156
------------ ------------
Total current liabilities 308,372 241,883
------------ ------------
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 September
30, 1998 and 1,762,880 shares at December
31, 1997 21,691 17,629
Paid in capital 1,843,772 1,842,907
Subscription receivable (120,000) 0
Accumulated deficit (1,775,253) (1,749,229)
------------ ------------
Total stockholders' equity (29,790) 111,307
------------ ------------
$ 278,582 $ 353,190
============ ============
</TABLE>
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,
---------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 210,306 $ 174,521 $ 514,026 $ 373,554
Cost of sales 74,544 60,653 189,406 134,235
----------- ----------- ----------- -----------
Gross profit 135,762 113,869 324,620 239,319
----------- ----------- ----------- -----------
3
<PAGE>
Operating expenses:
Administrative 60,580 87,801 208,342 250,229
Sales and marketing 44,454 93,054 118,795 230,065
Research and development -0- 11,143 0 30,564
----------- ----------- ----------- -----------
105,034 191,998 327,137 510,858
----------- ----------- ----------- -----------
Net profit (loss) on operations 30,728 (78,129) (2,517) (271,539)
Other income and expense
Interest income $ 106 0 321 -0-
Interest expense (7,839) (1,402) (23,832) (1,722)
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) $ 22,995 $ ( 79,532) $ (26,024) $ (317,222)
=========== =========== =========== ===========
Net Income (loss) per common share $ .011 $ (.05) $ (.012) $ (0.19)
=========== =========== =========== ===========
Outstanding shares of
common stock 2,169,100 1,752,119 2,169,100 1,698,828
=========== =========== =========== ===========
</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
<TABLE>
<CAPTION>
Nine months ended Sept. 30,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss (4) $ (26,024) $(317,222)
Adjustments to reconcile net loss to
net cash flows from operating activities
Amortization $ 0 $ 41
Depreciation (4) 8,134 8,858
N/P for Services 7,500 0
Accounts receivable 39,973 (195,845)
Inventories 40,403 23,371
Accounts payable (25,187) (25,441)
Accrued expenses (4,069) (8,551)
Other Assets 4,305 11,087
Loss on disposal of equipment 0 5,551
Write-off of Patent costs 0 38,409
4
<PAGE>
Options & Warrants for Services 0 18,125
--------- ---------
Net cash flows from operating activities $ 45,035 ($441,617)
Cash flows from investing activities:
Purchase of long-term assets 0 (8,448)
Net cash flows from investing activities 0 (8,448)
Cash flows from financing activities:
Bank line-of-credit (26,808) 89,833
Sale of stock for cash 34,927 335,828
Payment of long-term debt 0 (5,000)
Note payable - other (34,947) 0
Deferred Offering Cost (4,840) 0
--------- ---------
Net cash flows from financing activities (31,668) 420,661
--------- ---------
Net increase (decrease) in cash $ 13,367 $ (29,404)
Cash, beginning of period 14,298 34,578
--------- ---------
Cash, end of period $ 27,665 $ 5,174
========= =========
</TABLE>
(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, 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.
5
<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 September 30, 1998 the Company granted a 10 year
option to purchase 75,000 shares of common stock at $1.60 per share to the
founder and Chairman of the Board Robert H. Gilbertson. Gilbertson gave up
stock in connection with refinancing of the Company and terminated his
employment status. The Company settled all claims that have been made or
could have been made by Gilbertson with such matters. In the quarter ended
June 30, 1998 the Company issued 400,000 shares for one hundred and twenty
thousand dollars or an amount equal to 50% of the bid price as of the close
of business on the day said stock is sold. As of September 30, 1998 the
notes have not been excercised. The Company received four promissory notes
dated May 24, 1998 securing the 400,000 shares. The promissory notes are
due November 24, 1998.
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 has incurred losses of $333,867 in 1997 and $163,795 in 1996
and has incurred losses since inception of $1,775,253. As of September 30,
1998, the Company has accumulated losses of $26,026 for the first 9 months
of 1998.
NORTECH FOREST TECHNOLOGIES, INC.
MANAGEMENT DISCUSSION & ANALYSIS
THREE MONTHS ENDED SEPTEMBER 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, 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 and
Grant's brand labeled as "GRANT'S REPELS DEER". TREE GUARD, THIS 1 WORKS and
GRANT'S REPELS DEER are registered by the U.S. Environmental Protection Agency
(EPA).
6
<PAGE>
RESULTS OF OPERATIONS
Sales:
Net sales for the three months and nine months ended September 30, 1998 were
$210,306 and $514,026 respectively, compared to $174,521 and $373,554 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. TREE GUARD continues to be considered
one of the top brands according to a consumer article. However, new, more
competitive animal repellents are appearing on market shelves. It did not help
that sales and marketing expenses were reduced due to a lack of capital.
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, 1998, gross profit was
$135,762 and $324,621 or 64.5% and 63.2% of sales, respectively, compared to
$113,869, and $239,319 of sales for the respective periods last year. The slight
decrease in gross profit and gross profit margin percentages or 65.2% and 64% of
sales for the respective periods last year reflect normal variability and did
not reflect substantive change.
Administrative Expense. During the three months and nine months ended September
30, 1998, administrative expense was $60,580 and $208,342 respectively compared
to $87,801 and $250,229 for the respective periods last year. These decreased
costs were largely related to a reduction in public relations expenses. Public
relations expenses were transferred to, and are accounted for, in Sales and
Marketing.
Sales and Marketing Expense. During the three months and nine months ended
September 30, 1998, sales and marketing expense was $44,454 and $118,795,
respectively, compared to $93,054 and $230,065 for the respective periods last
year. Sales and marketing expenditures were limited in 1998 by the working
capital. The decrease in expenditures was from a sharp reduction in sales
collateral and public relations. Direct advertising was increased slightly.
Research and Development Expense During the three months and nine months ended
September 30, 1998, research and development expense was $0 and $0,
respectively, compared to $11,143 and $30,564 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,
1998, interest expense was $7,840 and $23,508, respectively, compared to $1,402
and $1,722 for the respective periods 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 summer for fall payment and in the fall for spring
payment. Sales made in the fall of 1998 are due May 10, 1999 for example.
Net Gain / Net Loss. For the reasons discussed above, the Company incurred a net
gain for the three months ended September 30, 1998 of $22,995. The Company
incurred a net loss of $26,026 for the nine months ended September 30, 1998. The
net gain and net loss per share respectively is $.011 and ($.012). The net loss
for the three months and nine months periods last year were $79,532 and
$317,222, or $.05 and $.14 per share.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1998, the Company had current assets of $246,682, current
liabilities of $308,372, and working capital of ($61,692) compared to current
assets of $236,563, current liabilities of $152,555 and working capital of
$74,214 on December 31, 1997.
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.
7
<PAGE>
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, 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: November 13, 1998 By: /s/ Calvin E. Blanchard
------------------- --------------------------------------------
Calvin E. Blanchard, Chief Operating Officer
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUN-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 27,665
<SECURITIES> 0
<RECEIVABLES> 175,446
<ALLOWANCES> 0
<INVENTORY> 40,621
<CURRENT-ASSETS> 243,732
<PP&E> 66,019
<DEPRECIATION> 42,209
<TOTAL-ASSETS> 278,582
<CURRENT-LIABILITIES> 308,371
<BONDS> 0
0
0
<COMMON> 21,691
<OTHER-SE> 51,480
<TOTAL-LIABILITY-AND-EQUITY> 278,582
<SALES> 210,306
<TOTAL-REVENUES> 210,306
<CGS> 74,544
<TOTAL-COSTS> 74,544
<OTHER-EXPENSES> 105,034
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,839
<INCOME-PRETAX> 22,995
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,995
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,995
<EPS-PRIMARY> 0.011
<EPS-DILUTED> 0
</TABLE>
