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, 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.
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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)
2233 UNIVERSITY AVENUE, NO. 225
ST. PAUL, MINNESOTA 55114
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(Address of Principal Executive Offices, Including Zip Code)
(651) 645-5454
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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, 1999, the Registrant had 2,169,130 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 March 31,
1999 and the related statements of operations and cash flows for the three
months ended March 31, 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
March 31, December 31,
1999 1998
--------- ------------
(Unaudited)
Current assets:
Cash $ 18,479 $ 30,874
Accounts receivable 132,700 126,014
Inventories
Finished goods 11,233 21,361
Raw materials 42,773 55,908
Prepaid expenses 2,633 4,750
--------- ---------
Total current assets 207,818 238,907
--------- ---------
Long-term assets:
Equipment 62,678 62,678
Accumulated depreciation (44,012) (41,580)
--------- ---------
18,666 21,098
--------- ---------
Other assets:
Organizational costs, net of accumulated
amortization of $628 and $617 during
1998 and 1997, respectively 0 0
Other assets 1,665 1,665
--------- ---------
TOTAL ASSETS $ 228,149 $ 261,670
========= =========
(1) See Note 1 to the financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Line of credit $ 64,674 $ 77,392
Accounts payable - trade 57,725 58,522
Note payable - other 59,767 67,659
Accrued expenses 18,819 21,294
----------- -----------
Total current liabilities 200,985 224,867
----------- -----------
Long Term Debt $ 27,031 $ 27,031
Total Liabilities $ 228,016 $ 251,898
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, 2,169,130 shares at March
31, 1999 and 2,169,130 shares at December
31, 1998 21,691 21,691
Subscription Receivable (120,000) (120,000)
Paid in capital 1,843,772 1,843,772
Accumulated deficit (1,745,330) (1,735,691)
----------- -----------
Total stockholders' equity 133 9,772
----------- -----------
Total Liabilities & Shareholder Equity $ 228,149 $ 261,670
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
----------------------------
1999 1998
----------- -----------
Sales $ 164,856 $ 86,645
Cost of sales 67,646 35,281
----------- -----------
Gross profit 97,210 51,364
----------- -----------
Operating expenses:
Administrative 57,118 81,263
Sales and marketing 42,765 36,538
Research and development -0- -0-
----------- -----------
99,883 117,801
----------- -----------
Net Profit (Loss) on operations (2,673) (66,437)
Other income and expense
Interest income 94 143
Interest expense (7,059) (7,753)
----------- -----------
Net Profit (Loss) $ (9,638) $ (74,047)
=========== ===========
Net loss per common share $ (0.005) $ (0.04)
=========== ===========
Outstanding shares of
common stock 2,169,130 1,762,880
=========== ===========
5
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss (4) $ (9,638) $(74,047)
Adjustments to reconcile net loss to
net cash flows from operating activities
Depreciation (4) 2,432 2,712
Note payable issued for services -0- 7,500
Accounts receivable (6,686) 82,384
Inventories 23,263 18,245
Accounts payable (9,932) 21,026
Accrued expenses (2,475) (7,488)
Other 2,116 735
-------- --------
Net cash flows from operating activities (920) 51,067
-------- --------
Cash flows from investing activities:
Purchase of long-term assets -0- -0-
Net cash flows from investing activities -0- -0-
-------- --------
Cash flows from financing activities:
Bank line-of-credit 6,152 (52,868)
Sale of stock for cash -0- -0-
Payment of long-term debt -0- -0-
Note payable - other (17,625) -0-
Deferred Offering Cost -0- -0-
Net cash flows from financing activities (11,473) (52,868)
-------- --------
Net increase (decrease) in cash (12,393) (1,801)
Cash, beginning of period 30,874 14,298
-------- --------
Cash, end of period $ 18,481 $ 12,497
======== ========
</TABLE>
(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 MARCH 31, 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.
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, 1999, 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, 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 March 31, 1999, the Company has accumulated losses of $9,638
for the first three months of 1999 for a total accumulated loss of
$1,745,330.
7
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
MANAGEMENT DISCUSSION & ANALYSIS
THREE MONTHS ENDED MARCH 31, 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 Deer Repellent"
TREE GUARD, THIS 1 WORKS, AND GRANT'S DEER REPELLENT 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, 1999 were $164,856 compared to
$86,645 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 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 March 31, 1999, gross profit was $97,210, or 59% of
sales, compared to $51,364 , or 59.3% of sales, during the same period last
year. 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
in future periods.
Administrative Expense. During the first quarter ended March 31, 1999,
administrative expense was $57,118 compared to $81,263 during the first quarter
last year. The decrease was primarily due to increased operating efficiencies.
Sales and Marketing Expense. During the first quarter ended March 31, 1999,
sales and marketing expense was $42,765 compared to $36,538 during the first
quarter last year. The increase was due to increased advertising and other
marketing expenses.
Research and Development Expense During the first quarter ended March 31, 1999,
research and development expense was $0 compared to $0 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.
Interest Expense. During the first quarter ended March 31, 1999, interest
expense was $7,059 compared to $7,753 during the first quarter last year. The
interest expense was due to the Company offering dating to its customers
8
<PAGE>
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 1998 are then due May 10, 1999.
Net Loss. For the reasons discussed above, the Company incurred a net loss of
$9,638 or $.005 per share, for the first quarter ended March 31, 1999, compared
to a net loss of $74,048, or $.04 per share, during the first quarter last year.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1999, the Company had current assets of $207,818, current
liabilities of $200,985, and working capital of $6,935 compared to current
assets of $212,933, current liabilities of $360,053 and working capital of
($112,740 on March 31, 1998. The increase in working capital was primarily due
to operating efficiencies.
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.
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, 1999, no exhibits are submitted.
b) Form 8-K
For the quarter ended March 31, 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: By:
------------------ -------------------------------------
Calvin E. Blanchard
Chief Operating Officer
9
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 18,479
<SECURITIES> 0
<RECEIVABLES> 132,700
<ALLOWANCES> 0
<INVENTORY> 54,006
<CURRENT-ASSETS> 207,818
<PP&E> 62,678
<DEPRECIATION> 44,012
<TOTAL-ASSETS> 228,149
<CURRENT-LIABILITIES> 200,985
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 228,149
<SALES> 164,856
<TOTAL-REVENUES> 164,856
<CGS> 67,646
<TOTAL-COSTS> 99,883
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,059
<INCOME-PRETAX> (9,638)
<INCOME-TAX> (9,638)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,638)
<EPS-PRIMARY> (.005)
<EPS-DILUTED> 0
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