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, 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, NO. 225
ST. PAUL MINNESOTA 55114
------------------------------------------------------------
(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 June 30, 1999, the Registrant had 3,519,130 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, 1998 and June 30,
1999 and the related statements of operations and cash flows for the six months
ended June 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.
2
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 34,250 $ 30,874
Accounts receivable 137,218 126,014
Inventories
Finished goods 7,118 21,361
Raw materials 44,753 55,908
Prepaid expenses 8,242 4,750
------------ ------------
Total current assets 231,581 238,907
------------ ------------
Long-term assets:
Equipment 64,283 62,678
Accumulated depreciation (46,443) (41,580)
------------ ------------
17,840 21,098
------------ ------------
Other assets:
Organizational costs, net of accumulated
amortization of $628 and $617 during
1999 and 1998, respectively 0 0
Other assets 1,665 1,665
------------ ------------
1,665 1,665
------------ ------------
$ 251,086 $ 261,670
============ ============
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS EQUITY
- -----------------------------------
Current liabilities:
Line of credit $ 37,172 $ 77,392
Accounts payable - trade 70,179 58,522
Note payable - other 40,985 67,659
Accrued expenses 94,640 21,294
------------ ------------
Total current liabilities 242,976 224,867
------------ ------------
Long Term Debt 27,031 27,031
Total Liabilities $ 270,007 $ 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;
3,750,000 shares authorized; issued and
outstanding, 3,519,130 shares at June
30, 1999 and 1,762,880 shares at December
31, 1998 35,191 21,691
Subscription Receivable $ (795,000) $ (120,000)
Paid in capital 2,437,772 1,843,772
Accumulated deficit (1,696,884) (1,735,691)
------------ ------------
Total stockholders' equity $ (18,921) 9,772
------------ ------------
Total Liabilities and Equity $ 251,086 $ 261,670
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
-------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 234,256 $ 217,076 $ 399,112 $ 303,720
Cost of sales 71,664 79,581 $ 139,310 114,861
----------- ----------- ----------- -----------
Gross profit $ 162,592 $ 137,495 $ 259,802 $ 188,859
----------- ----------- ----------- -----------
Operating expenses:
Administrative $ 54,599 $ 66,499 $ 111,718 $ 147,763
Sales and marketing 55,215 37,812 97,980 74,340
Research and development -0- -0- -0- -0-
----------- ----------- ----------- -----------
$ 109,814 $ 104,311 $ 209,698 $ 222,103
----------- ----------- ----------- -----------
Net profit (loss) on operations $ 52,778 $ 33,184 $ 50,104 ($ 33,244)
Other income and expense
Interest income $ 686 $ 72 $ 780 $ 215
Interest expense $ (5,018) $ (8,237) $ (12,077) $ (15,990)
Net Profit (loss) $ 48,446 $ 25,019 $ 38,807 $ (49,019)
=========== =========== =========== ===========
Net Profit (loss) per common share $ 0.014 $ 0.012 $ 0.011 $ (0.023)
=========== =========== =========== ===========
Outstanding shares of
common stock 3,519,130 2,169,100 3,519,130 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
<TABLE>
<CAPTION>
Six months ended June 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) (4) $ 48,446 $ (49,020)
Adjustments to reconcile net loss to
net cash flows from operating activities
Amortization -0- -0-
Depreciation (4) 2,431 5,423
N/P for services -0- -0-
Accounts receivable (4,517) 90,195
Inventories 2,133 21,386
Accounts payable 12,454 10,871
Accrued expenses 8,797 (5,325)
Other (1,179) 1,651
Net cash flows from operating activities $ 68,565 75,181
---------- ----------
Cash flows from investing activities:
Purchase of long-term assets $ (1,605) -0-
Net cash flows from investing activities $ (1,605) -0-
Cash flows from financing activities:
Bank line-of-credit $ (27,502) $ (64,294)
Sale of stock for cash -0- (115,072)
Note payable - issued for services -0- 7,500
Note payable - other (19,258) 133,821
Deferred Off. Cost (4,430) -0-
Net cash flows from financing activities (51,190) (38,045)
---------- ----------
Net increase (decrease) in cash 15,770 37,136
Cash, beginning of period 18,479 14,298
---------- ----------
Cash, end of period $ 34,249 $ 51,434
========== ==========
</TABLE>
(4) See Note 4 to financial statements.
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 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. 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. ADDITIONAL 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.
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 incurred losses of $333,867 in 1997, $163,795 in 1996 and
$542,950 in 1995. As of June 30, 1999, the Company has accumulated profits
of $38,807 for the first six months of 1999 for a total accumulated loss of
$1,759,441.
7
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
MANAGEMENT DISCUSSION & ANALYSIS
SIX MONTHS ENDED JUNE 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 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 alternate
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, 1999 were $234,256 compared to
$217,076 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 during the last several
quarters, the degree to which sales can be expanded during 1999 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, 1999, gross profit was $162,592, or 69.4%
of sales, compared to $137,494, or 63.3% 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, 1999,
administrative expense was $54,599 compared to $66,449 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, 1999,
sales and marketing expense was $55,215 compared to $37,854 during the second
quarter last year. The increase was due to increased advertising expenses.
Research and Development Expense During the second quarter ended June 30, 1999,
research and development expense was $0 compared to $0 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.
8
<PAGE>
Interest Expense. During the second quarter ended June 30, 1999, interest
expense was $5,018 compared to $8,165 during the second quarter last year. The
decrease 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
$48,446 or $.018 per share, for the second quarter ended June 30, 1999, compared
to a gain of $25,028, or $.01 per share, during the second quarter last year.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 1999, the Company had current assets of $231,581, current
liabilities of $175,476, and working capital of $56,105 compared to current
assets of $361,906, current liabilities of $324,462 and working capital of
$37,444 on June 30, 1998. The increase in working capital was primarily due to
an increase in sales.
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.
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 10K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits.
For the quarter ended June 30, 1999, no exhibits are submitted.
b) Form 8-K
For the quarter ended June 30, 1999, 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: 8/14/99 By: /s/ Calvin E. Blanchard
--------------------- -------------------------------------
Calvin E. Blanchard
Chief Operating Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> MAR-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 48,446
<SECURITIES> 0
<RECEIVABLES> 137,218
<ALLOWANCES> 0
<INVENTORY> 51,871
<CURRENT-ASSETS> 231,581
<PP&E> 64,283
<DEPRECIATION> 46,443
<TOTAL-ASSETS> 251,086
<CURRENT-LIABILITIES> 242,976
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 251,086
<SALES> 234,256
<TOTAL-REVENUES> 234,256
<CGS> 71,664
<TOTAL-COSTS> 181,478
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,018
<INCOME-PRETAX> 48,446
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,446
<EPS-BASIC> 0
<EPS-DILUTED> .014
</TABLE>
