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, 1999
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, 1999, the Registrant had 4,194,000 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, 1998 and September
30, 1999 and the related statements of operations and cash flows for the nine
months ended September 30, 1999 and 1998, 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, 1998.
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.
At the Company's 1999 Annual Meeting of Stockholders held on August 30, 1999; an
increase in authorized outstanding Common Stock from 3,750,000 to 15,000,000 was
announced. The effective date of the approval was August 20, 1999.
The unaudited financial statements enclosed herewith reflect said adjustment for
the increase in the number of shares of outstanding Common Stock.
2
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
BALANCE SHEETS
September 30, December 31,
1999 1998
--------- ---------
(Unaudited)
ASSETS
Current assets:
Cash $ 18,361 $ 30,874
Accounts receivable 190,470 126,014
Inventories
Finished goods 3,782 21,361
Raw materials 43,540 55,908
Prepaid expenses 10,131 4,750
--------- ---------
Total current assets 266,284 238,907
--------- ---------
Long-term assets:
Equipment 64,283 62,678
Accumulated depreciation (48,928) (41,580)
--------- ---------
15,355 21,098
--------- ---------
Other assets:
rent deposit 1,665
non-refundable deposit on an
acquisition and related costs 137,106 -0-
--------- ---------
Total Assets $ 418,745 $ 261,670
========= =========
(1) See Note 1 to the financial statements.
(4) See Note 4 to the financial statements.
Note: The balance sheet at December 31, 1998 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.
3
<PAGE>
September 30, December 31,
1999 1998
----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Line of credit $ 144,653 $ 77,392
Accounts payable - trade 12,348 58,522
Note payable - other 20,966 67,659
Accrued expenses 95,701 21,294
----------- -----------
Total current liabilities 273,668 224,867
----------- -----------
Long Term Debt 27,031 27,031
Total Liabilities 300,699 251,898
Stockholders' equity:
Preferred Stock, par value $.01 per share;
500,000 shares authorized, none issued 0 0
Common Stock, par value $.01 per share;
15,000,000 shares authorized; issued and
outstanding, 4,194,100 shares at
September 30, 1999 and 2,169,100 shares at
December 31, 1998 41,941 21,691
Paid in capital 2,566,022 1,843,772
Subscription receivable (795,000) (120,000)
Accumulated deficit (1,694,917) (1,735,691)
----------- -----------
Total stockholders' Equity 118,046 9,772
----------- -----------
Total Liabilities and Equity $ 418,745 $ 261,670
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 157,521 $ 210,306 $ 556,633 $ 514,026
Cost of sales 50,102 74,544 189,412 189,406
----------- ----------- ----------- -----------
Gross profit $ 107,419 135,762 $ 367,221 324,620
----------- ----------- ----------- -----------
Operating expenses:
Administrative 54,265 60,580 165,982 208,342
Sales and marketing 45,942 44,454 143,922 118,795
Research and development -0- -0- -0- -0-
----------- ----------- ----------- -----------
$ 100,207 105,034 $ 309,904 327,137
----------- ----------- ----------- -----------
Net profit (loss) on operations 7,212 30,728 57,317 (2,517)
Other income and expense
Interest income $ 301 106 1,081 321
Interest expense (5,547) (7,839) (17,625) (23,832)
Net Income (loss) $ 1,966 $ 22,995 $ 40,773 $ (26,028)
=========== =========== =========== ===========
Net Income (loss) per common share $ 0.000 $ 0.011 $ 0.010 $ (0.012)
=========== =========== =========== ===========
Outstanding shares of
common stock 4,194,130 2,169,100 4,194,130 2,169,100
=========== =========== =========== ===========
</TABLE>
(4) See Note 4 to the financial statements.
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash
Quarter ended Sept. 30,
-----------------------
1999 1998
--------- ---------
Cash flows from operating activities:
Net income (loss) (4) $ 1,966 $ (26,024)
Adjustments to reconcile net loss to
net cash flows from operating activities
Amortization $ 0 $ 0
Depreciation (4) 2,485 8,134
N/P for Services 7,500
Accounts receivable (53,252) 39,973
Inventories 4,549 40,403
Accounts payable (57,831) (25,187)
Accrued expenses 586 (4,069)
Other Assets (6,318) 4,305
--------- ---------
Net cash flows from operating activities $(107,815) $ 45,035
Cash flows from investing activities:
nonrefundable deposit on acquisition $(100,000) -0-
Net cash flows from investing activities $(100,000) -0-
Cash flows from financing activities:
Bank line-of-credit $ 107,481 (26,808)
Sale of stock for cash 135,000 34,927
Note payable - other (19,543) (34,947)
Deferred Offering Cost (31,011) (4,840)
---------
Net cash flows from financing activities 191,927 (31,668)
---------
Net increase (decrease) in cash $ (15,888) $ 13,367
Cash, beginning of period 34,249 14,298
--------- ---------
Cash, end of period $ 18,361 $ 27,665
========= =========
(4) See Note 4 to financial statements.
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (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, 1998 audited financial
statements and the accompanying notes thereto. Although audited, the balance
sheet at December 31, 1998 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. COMMON STOCK INCREASE
At the Company's 1999 Annual Meeting of Stockholders held on August 30, 1999 the
Company's stockholders announced an amendment to the Company's Certificate of
Incorporation to increase the authorized shares of Common Stock from 3,750,000
to 15,000,000. This had been approved by stockholder vote. The effective date of
the increase was August 20, 1999 and the unaudited financial statements enclosed
herewith reflect said adjustment for the number of shares of outstanding Common
Stock.
3. ADDITIONAL EQUITY
One hundred thousand shares of Common Stock shares were issued to Kenneth Eade,
Esquire for services rendered and future securities services effective July 22,
1999.
Additional capital of $135,000 was raised in a private placement consisting of
675,000 shares in July and August of 1999.
May 24, 1998 400,000 shares of Nortech stock were sold as part of a subscription
agreement with a note receivable of $120,000.
March 29, 1999 1,350,000 shares of Common Stock under Reg D, Rule 504 were
authorized by written action of the Board of Directors. The stock was issued but
held in trust pending distribution instructions. The stock was sold as part of a
subscription agreement with a note receivable of $607,500.
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, 1998, 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 a profit of $13,537 in 1998 and a loss of $338,867 in 1997 and has
incurred losses since inception of $1,775,253. As of September 30, 1999, the
Company has accumulated a net gain of $40,773 for the first 9 months of 1999.
6. NON-REFUNDABLE DEPOSIT
A non-refundable deposit on an acquisition and related costs are on the
September 30, 1999 balance sheet as other assets. Should the Company be unable
to complete the acquisition these assets would become expenses. Should this
occur it would materially affect the Company's performance short term.
7
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
MANAGEMENT DISCUSSION & ANALYSIS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (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, 1998.
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 two alternate brands labeled as "THIS 1 WORKS" and the "GRANT'S
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 three months and nine months ended September 30, 1999 were
$157,521 and $556,631 respectively, compared to $210,306 and $514,026 for the
respective periods last year. Sales during the third quarter reflect decreased
performance compared to the same period last year. The East Coast market drought
had significant impact on our strongest market segment resulting in decreased
sales performance compared to the same period last year. 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 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, 1999, gross profit was
$107,419 and $367,221 or 68% and 66% of sales, respectively, compared to
$135,419, and $324,621 and 64.5% and 63.2% of sales for the respective periods
last year. The slight increase in gross profit and gross profit margin
percentages of sales for the respective periods last year reflect normal
variability and do not reflect substantive change.
Administrative Expense. During the three months and nine months ended September
30, 1999, administrative expense was $54,265 and $165,982 respectively compared
to $60,580 and $208,342 for the respective periods last year. The decrease was
primarily due to increased attention to lowering expenses.
Sales and Marketing Expense. During the three months and nine months ended
September 30, 1999, sales and marketing expense was $45,942 and $143,922,
respectively, compared to $44,454 and $118,795 for the respective periods last
year. The increase was due to increased advertising expenses
Interest Expense. During the three months and nine months ended September 30,
1999, interest expense was $5,547 and $17,625, respectively, compared to $7,840
and $23,508 for the respective periods last year. 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 1999 are
due May 10, 2000 for example.
8
<PAGE>
Net Gain / Net Loss. For the reasons discussed above, the Company incurred a net
gain for the three months ended September 30, 1999 of $1,966. The Company
incurred a net gain of $40,773 for the nine months ended September 30, 1999
compared to a net loss of ($26,028) for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1999, the Company had current assets of $266,284, current
liabilities of $273,668, and working capital of ($7,384) compared to current
assets of $246,682, current liabilities of $308,372 and working capital of
($61,692) on September 30, 1998.
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 1999 or 2000.
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.
9
<PAGE>
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 1998 10-K
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits.
for the quarter ended September 30, 1999, no exhibits are submitted.
b) Form 8-K
For the quarter ended September 30, 1999, the Company did file a report 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: 11/15/99 By: /s/ Calvin E. Blanchard
Calvin E. Blanchard,
Chief Operating Officer
10
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 18,361
<SECURITIES> 0
<RECEIVABLES> 190,470
<ALLOWANCES> 0
<INVENTORY> 47,322
<CURRENT-ASSETS> 266,284
<PP&E> 64,283
<DEPRECIATION> 48,928
<TOTAL-ASSETS> 418,745
<CURRENT-LIABILITIES> 273,668
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 418,745
<SALES> 157,521
<TOTAL-REVENUES> 157,521
<CGS> 50,102
<TOTAL-COSTS> 100,207
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,547
<INCOME-PRETAX> 1,966
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,966
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
