U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER
SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
NORTECH FOREST TECHNOLOGIES, INC.
(Name of Small Business Issuer in its charter)
Delaware 06-1342912
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
2233 University Avenue, Suite 225
St. Paul, Minnesota 55114-1696
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class
is to be registered
None N/A
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of class)
Item 1. Description of Business
Business Development
Through February 2, 2000, Nortech Forest Technologies, Inc. ("Nortech") was
engaged in the business of manufacturing and marketing TREE GUARD (R) brand
deer repellent and the development of products designed to protect plants,
trees and landscaping from damage by animals and certain acts of nature. On
February 3, 2000, Nortech entered into a stock sale agreement to purchase
all of the outstanding stock of Floral Inc. and FL Flowers, Inc., in
exchange for 3,206,245 shares of common stock, plus an additional 6,412,474
shares of common stock contingent upon achieving certain annual gross sales
targets, and changed its business focus to retail flower sales.
As a result of the stock sale agreement, Nortech acquires an ongoing floral
business with 12 florist shops located in the Minneapolis/St. Paul
metropolitan area, operating under the names FL Floral, Inc. and FL Flowers,
Inc., d.b.a. Stems and Vines, including equipment, inventory and goodwill.
On February 3, 2000, in a move to effectuate the change of the principal
business of Nortech from animal repellent sales to floral sales, Nortech
sold all of the assets associated with its animal repellent business to
Becker Underwood, Inc. for the sum of $850,000, subject to adjustment to
equal the actual 1999 sales of Nortech, reduced dollar for dollar in the
event Nortech's independent auditors determine that gross sales for 1999 are
less than $789,119.
Prior to the 1999 Annual Meeting of Stockholders, a proposal to increase the
authorized capital of Nortech from 3,750,000 to 15,000,000 common shares was
approved by a majority of the stockholders.
THE FLORAL SALES BUSINESS
IN GENERAL
Nortech is an integrated retailer and marketer of flowers, plants, and
complementary gifts and decorative accessories. It operates the largest
chain of floral specialty retail stores in the Minneapolis/St. Paul
metropolitan area. The Company's plan is to build brand name recognition in
the North Central United States, and then attempt to expand that brand name
recognition nationally. Nortech has sought to accomplish this by
integrating its operations throughout the floral supply chain, from product
sourcing to delivery, and by managing every interaction with the customer,
from order generation to order fulfillment. Nortech ultimately intends to
provide all of its retail customers with a unique and enhanced shopping
experience under the Stems and Vines brand.
Nortech's retail locations all utilize the brand name, Stems and Vines, and
a common advertising theme. The design focus for each location centers on a
European garden look. This common theme allows for the inter-company
exchange of products and services among Nortech's retail locations. The
inter-company computer system allows for the centralized location and
location-targeted production of arrangements, thereby reducing or
eliminating significant cross-location delivery issues.
Nortech serves customers who do not visit or phone our retail stores through
its Internet web site, www.stemsandvines.com. Nortech currently promotes
its web site on leading Internet properties, including Yahoo! To ensure
superior customer service and efficient order processing, Nortech operates a
central call center. To distribute orders in markets where Nortech does not
have its own stores, Nortech uses several flowers-by-wire services,
including FTD, Florafax and American Floral Services (AFS).
Management believes that the execution of this integrated operating model
will make the stems and vines brand synonymous with superior service,
quality and value.
Nortech operates twelve floral retail stores and one central production/call
center. Each store sells fresh cut flowers, green plants, blooming plant,
dried floral arrangements, silk flowers and gifts. Nortech provides a wide
array of traditional and contemporary designs for over 150 weddings
annually. Nortech also performs plant maintenance for corporate customers.
THE FLORAL INDUSTRY.
Supply Chain
The majority of cut flowers sold at retail in the United States are grown
outside of the United States, principally in Colombia, Mexico, Ecuador and
the Netherlands. Flowers grown outside of the United States are shipped from
the farms to importers in the United States. The majority of European
products arrive in New York while most Central American and South American
products arrive in Miami. After clearing customs and inspections, floral
importers divide the flowers into smaller lot sizes and repack the flowers
for shipment to wholesalers or bouquet companies. Wholesalers then market
the flowers to retail florists, supermarkets, other mass market outlets, and
bouquet companies. Flowers sold to bouquet companies are usually arranged
and packaged for the consumer market and the bouquets are then sold in bulk
by the bouquet companies to supermarkets and mass-market retailers. In
aggregate, the supply chain typically delivers a flower to the retailer
approximately 10 to 12 days after the flower is first cut. Moreover, the
extensive handling of the product and the temperature fluctuations to which
it is subjected adversely affect the life of the flower.
Order Generation
Order generators market and advertise in various media to generate floral
orders via dial-up numbers, the Internet or direct mail. As order generators
typically lack fulfillment capabilities, they forward these orders through a
wire service to a retail florist for delivery. Order generators typically
receive a fee equal to 20% of the order for their services. Some order
generators also impose a service charge on the customer for handling the
order. Large order generators typically receive rebates from wire services
for sending orders through their services.
Wire Services
Wire services establish networks of retail florists and facilitate the
transmission and financial settlement of floral orders among the network
members. Wire services publish a membership directory that enables florists
to select which florist will deliver an arrangement outside the sending
florist's own delivery area. Alternatively, florists can allow the wire
service to choose which florist will deliver an arrangement. Some wire
services also supply various goods, including vases and other materials,
that florists may use in the ordinary course of business.
Wire services typically collect a fee of approximately 7% of the value of an
order exchanged via the wire service; however, the fee collected from larger
florists and order generators is often offset by a rebate. Wire services
also typically charge a monthly membership fee to member florists. Since
wire services generally do not own their member florists, they have little
control over the quality of the product and service of the delivering florist.
Retail
Retailers sell flowers, plants and, in certain cases, complementary gifts
and decorative accessories to customers. Retailers include floral shops,
supermarkets, garden centers, discount warehouses and lawn and garden
centers. Floral shops also receive orders for out-of-town delivery that they
forward, typically through wire services, to other floral shops for
fulfillment and local delivery.
THE FLORAL INDUSTRY'S SIZE AND OPPORTUNITY.
Size
The domestic retail floral industry is a large and growing industry
with attractive business economics. According to industry sources:
- Retail floral industry revenue was approximately $15 billion in
1998.
- When added to the complementary gifts and accessories market, the
combined industry exceeds $60 billion.
- Sales by florists grew by 5.5% in 1998.
- Gross margins for retailers average approximately 60%.
Opportunity to Create a National Network
Management believes that the domestic retail floral industry presents
opportunities for innovation, differentiation and the creation of a national
brand due to the following industry characteristics:
- Highly fragmented, with the top ten floral chains accounting
for less than 5% of total retail sales.
- Absence of a national retail brand.
- Unique customer purchasing characteristics, with 40% of product
orders placed outside of a retail location, approximately 90% of
which are local calls made to local florists.
- Inefficient and decentralized supply chain, with transactions among
growers, importers, wholesalers and retailers creating substantial
incremental costs but providing little additional value to the end
user.
- Lack of integrated order generation and fulfillment companies.
- Under-marketed, with marketing expenditures typically less than
3% of
sales.
- Large, under-marketed customer lists.
Opportunity to Grow the Market
We believe the retail floral industry also presents opportunities to expand
floral consumption as a result of the following factors:
- The United States is not among the top ten countries in the world in
per capita consumption of flowers; per capita spending in the United
States is significantly less than that of most western European
countries, according to the Floral Council of Holland.
- Favorable customer demographics and lifestyle trends should generate
additional industry growth.
- Customers value an extended vase life for flowers, which can be
achieved by streamlining the supply chain.
- Retail florists have focused on the gift-giving customer, largely
ignoring the opportunity to increase self-consumption.
- The Internet allows for visual merchandising and targeted marketing
of flowers.
BUSINESS STRATEGY
Nortech's goal is to become a primary floral and gift retailer and
marketer in the United States. It intends to accomplish this by selling a broad
selection of floral and floral-related products, providing superior customer
service and building strong customer loyalty. Because of our management team's
extensive experience in floral sales, and the expansion of Nortech's retail
presence, we have become the second largest retail floral chain in the
Minneapolis/St. Paul metropolitan area. Nortech believes its management has
the skills and experience necessary to establish Stems and Vines as a
prominent brand in the floral industry. Key elements of its strategy include:
BUILD A REGIONAL NETWORK OF RETAIL STORES.
Nortech plans to expand its retail operations in order to increase its
market share in existing markets and to open and/or acquire stores in new
markets where the opportunity exists to become a leading floral retailer,
such as Nortech has done in the Minneapolis/St. Paul market. Over the next
five years, Nortech's strategy is to develop an expanded retail network in
the areas where Nortech has identified a significant market and opportunity
to acquire smaller retail operations and integrate them with Nortech's
operations.
Nortech's retailing network is based on a "hub-and-satellite" system, which
Nortech's management believes is the most efficient operating structure for
the retail floral industry based upon the success of the leading floral
retail chains. A hub facility serves as a distribution center and warehouse
for surrounding satellite stores within a market. Nortech currently operates
one hub facility in one market, and it plans to have at least one hub in
each of the
the major markets in which we will operate, either through acquisition or
construction. Management believes that a hub facility will eliminate cost
redundancies and delivery inefficiencies resulting from the typically
decentralized floral supply chain.
Nortech has developed a concept store that is designed to maximize revenue
within the hub-and-satellite network by catering to the walk-in customer.
This store will create a unique and enhanced shopping experience through an
expanded product mix, innovative merchandising and store design, a
knowledgeable staff of professional florists and exceptional customer
service. Each of Nortech's retail stores follow this concept store plan, use
Nortech's brand name, Stems and Vines, and follow a European garden theme.
BUILD THE ORDER-GENERATION BUSINESSES.
Nortech has developed a customer base which allows it to serve customers who
do not visit its retail stores, in order to target Nortech's advertising and
promotions. Through the use of more sophisticated database marketing
techniques, our strategy is to use our order-generation capabilities to
increase non-holiday and advance sales to customers in all channels. Where
possible, we expect to distribute orders generated by these businesses
through our retail store network, assuring our customers of high-quality
products and superior customer service. Most order generators lack
fulfillment capabilities and transmit their orders through wire services to
independent local florists for production and delivery. We believe our
retail stores will provide us with a significant competitive advantage over
order generators who lack fulfillment capabilities, particularly at holidays
and other peak times.
Nortech intends to promote its e-commerce operations. Similar to traditional
order-generation businesses, we believe that online flower order generation
must
be coupled with an owned or affiliated local delivery network. This approach
provides the greatest ability to manage all aspects of an order, from order
taking to delivery confirmation, and ensures product quality and customer
service consistency. Our e-commerce strategy is to position Nortech as a
premier online floral and related gift marketer through a multi-branded
strategy
targeted at specific audiences. To promote its web site, Nortech has marketing
contracts with major online portals, including Yahoo! We also intend to
continually upgrade our website offerings in order to provide existing and new
customers with broad product offerings and convenient ordering processes.
IMPROVED INFORMATION SYSTEMS.
Nortech's plan is to develop information systems that will give us a
competitive
advantage. Improved information systems will allow us to enhance the
customer's overall experience across our retail network and throughout our
order-generation businesses. By combining enhanced information systems with
sophisticated merchandising, database and supply chain management
techniques, we believe these information systems will improve our
profitability.
THE MARKET
In general, the geographic market area for walk-in traffic for each store
extends approximately to a six mile radius. Telephone sales and long terms
relationships have created an extended customer base for Nortech. Wire
service orders account for approximately 20% of Nortech's business.
PRODUCTS AND SERVICES
Retail Stores
Nortech owns twelve retail flower stores in the Minneapolis/St. Paul
metropolitan area, and one production/call center, which receives and
distributes inventory to each of the stores. Each location sells fresh cut
flowers, green plants, blooming plants, dried floral arrangements, silk
flowers, balloon bouquets, and gifts. Each store draws walk-in traffic from
an approximate six mile radius. The stores also each have established a
customer base which extends beyond the six mile area. These customers place
telephone sales with Nortech for flower deliveries. The central production
facility is located at 2509 West County Road B, Roseville, MN 55113. The
locations of the retail stores are:
Stems and Vines on Grand
949 Grand Avenue
St. Paul, MN 55105
JDB Florist
515 Owens
Stillwater, MN 55082
Holm & Olson
Carriage Hill Plaza-Holm & Olson
Lowry Medical Building
350 St. Peter Street
St. Paul, MN 55102
Holm & Olson
2100 North Snelling
Roseville, MN 55113
Rossi's Floral Shop
386 West Bernard Street
West St. Paul, MN 55118
Lake Elmo Floral
3479 Lake Elmo Blvd.
Lake Elmo, MN 55042
Northfield Floral
640 South Water Street
Riverpark Mall
Northfield, MN 55057
Stems and Vines of White Bear Lake
1971 Whitaker Street
White Bear Lake, MN 55110
Julie's Stems and Vines on 50th
813 West 50th Street
Minneapolis, MN 55419
Cedar Lake Floral
1822 East Lake Street
Minneapolis, MN 55419
Rosacker's Flowers and Gifts
2315 18th Avenue NE
Minneapolis, MN 55418
Valerie's Fresh Flowers
582 Prarie Center Drive
Eden Prarie, MN 55344
Nortech's retail stores follow a European garden theme and creates a
unique and enhanced shopping experience for our customers. Our stores
feature specially designed fixtures, are divided into easy-to-shop
categories and
feature professionals demonstrating the art of flower arranging. The store
design is intended to give customers a warm, inviting place to browse and learn
about Nortech's products.
In our stores, customers will find fresh-cut flowers and bouquets displayed
creatively and in abundance, with informational tags and signage to guide the
customer through the store. The traffic pattern of Nortech's stores
draws customers through the store in a logical progression, exposing the
customer
to the breadth of available floral products and gift items. In addition to
flowers and plants, our stores carry a number of complementary gifts and
decorative accessories, gourmet confections, gift baskets, decorative
accessories, collectibles and seasonal/holiday decorations. We believe that
expanding the product mix of our stores to include these products is a
natural extension of our floral product offerings since these products, like
flowers, are commonly used as gifts to communicate personal expressions to
others and for
self-consumption to create a warm and friendly home environment. We believe
that
offering gifts and decorative accessories will not only enable us to meet the
needs of our existing customers who currently purchase these products at
competing specialty retailers, but will also allow us to attract new customers
who do not normally purchase flowers or plants.
In addition to providing our customers with a unique and enhanced in-store
experience and a broader array of merchandise, we are committed to providing
superior customer service. We intend to provide same-day delivery on a regional
scale from all distribution points, and expanded hours through our call center,
and to offer customers the opportunity to place orders 24 hours a day, 7
days a
week.
WIRE SALES
Nortech receives and forwards wire orders and fills wire orders for flowers.
Nortech is a member of all three major wire services; FTD, American Floral
Service (AFS) and Teleflora.
WEDDINGS
Nortech provides a wide array of traditional and contemporary wedding floral
designs for approximately 150 weddings annually.
RAW MATERIALS AND SUPPLIERS
Nortech obtains fresh cut flowers from many different suppliers; primarily
Everflora and Koehler-Dramm, Inc.
PATENTS AND TRADEMARKS
Nortech is the owner of the domain name, www.stemsandvines.com. Nortech
applied in March, 2000 for federal registration of the trademark, "Stems and
Vines."
EMPLOYEES
Nortech currently has 140 employees; primarily retailers and florists.
Nortech is not subject to any collective bargaining agreements and believes
that its labor relations are good.
COMPETITION
Nortech faces intense competition throughout the retail floral industry. Our
retail stores compete with traditional floral shops, supermarkets, garden
centers,vendors and other retailers based upon price, credit terms, breadth
of product offering, product quality, customer service and location. We also
compete with gift and other specialty retailers with our non-floral
products. Nortech's Internet order-generation businesses faces significant
competition from many other companies whose financial resources are superior
to that of Nortech, who provide similar services, such as Bachman's.
GOVERNMENT REGULATION
Nortech is subject to laws and regulations that are applicable to various
Internet activities. There are many legislative and regulatory proposals
under consideration by federal, state, local and foreign governments and
agencies, including matters relating to online content, Internet privacy,
Internet taxation, access charges, liability for information retrieved from
or transmitted over the Internet, domain names, database protection,
unsolicited commercial e-mail messages and jurisdiction. New regulations may
increase our costs of compliance and doing business, decrease the growth in
Internet use, decrease the demand for our services or otherwise have a
material adverse effect on our business.
Nortech is also subject to federal, state and local environmental, health
and safety laws and regulations. Under environmental laws, we may be
responsible for investigating and remediating environmental conditions
relating to conditions at the numerous real properties at which we operate.
These obligations could arise whether we own or lease the property. We are
not aware of any pending federal environmental legislation that we expect to
have a material adverse impact on our company.
Item 2. Management's Discussion and Analysis of Plan of Operations
The following discussion and analysis provides information that management
of Nortech believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion
should be read in conjunction with the accompanying audited financial
statements and footnotes.
FORWARD LOOKING STATEMENTS
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, maybe,
expects or anticipates. In addition to the factors discussed herein, among
the other factors that could cause Nortech'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
Nortech with the Securities and Exchange Commission, including, but not
limited to Nortech's audited financial statements for the year ended
December 31, 1999, enclosed herein.
GENERAL
Nortech has developed, introduced and marketed a ready to use deer repellent
called TREE GUARD. It is formulated to discourage animals from browsing on
plants such as flowers, shrubs and trees. Nortech believes based on it own
testing and experience that TREE GUARD fills a significant niche in the
commercial as well as lawn and garden repellent market.
TREE GUARD sales occur primarily among independent lawn and garden centers
(51%). The second largest segment is commercial (26%) which consists of
forestry and professional accounts. The TREE GUARD formula is sold and
marketed under two alternate brand names commonly referred to as private
brands. They are "This One Works" and "Grants Deer Repellent".
The largest market segment is retail lawn and garden centers served by
independent lawn and garden distributors. Nortech's independent distributors
sell to lawn and garden retailers. Bachman's is an example of the lawn and
garden retailer in the Minneapolis area.
Besides TREE GUARD sales, Nortech marketed private brand products to
Voluntary Purchasing Group and Grant's. Voluntary Purchasing Group sells to
independent lawn and garden markets. "This One Works" consisted of ten
percent of sales and Grant's Deer Repellent consisted of eighteen percent of
sales in the year ending December 31, 1999.
Grant's was added as a private brand distributor in order to penetrate the
mass merchandise market. Grant's is a wholly owned subsidiary of Central
Garden and Pet, a major distributor in the green industry. Central Garden &
Pet Company is headquartered in Lafayette, California. It has 28 regional
offices across the United States with three hundred salesmen. Grant's was
selected as a partner because it markets to mass merchandisers like
Wal-Mart. Nortech has not been successful in penetrating the mass
merchandise market. The arrangement with Grant's allowed Nortech to begin
participating in the mass merchandise market without the usual exposure to
mass merchandiser performance and pricing policies. Sales to Grants
constituted thirteen percent of sales in 1998 and 1999.
On February 3, 2000, Nortech purchased all of the outstanding stock of FL
Floral, Inc. and Floral, Inc., and began operating a chain of "Stems and
Vines" retail floral stores along with a floral sales Internet web site.
Simultaneously with the acquisition of FL Floral, Inc. and Floral, Inc.,
Nortech sold all of the assets and goodwill associated with its animal
repellent business, and began to focus on operating the floral stores and
expanding the commerce on its Internet site.
RESULTS OF OPERATIONS
Year Ended December 31, 1998 Compared to Year Ended December 31, 1999
Sales for the year ended December 31, 1999 were $789,119 compared to
$712,461 reported in 1997. The increased sales were a direct result of
targeting the best independent distributors and then working with them to
sell TREE GUARD. Nortech attended an increased number of distributors shows
and regional trade shows. Nortech conducted a limited direct mail campaign
to garden centers and garden writers. Nortech offered seasonal sales
discounts and dating to traditional independent distributors.
Gross profit for the year ended December 31, 1999 was $531,255 or 67.5% of
sales as compared to $475,348 or 66% for 1998. The increase in margin is a
result of increased direct sales of TREE GUARD and production efficiencies
associated with increased volume.
Sales and marketing expense increased to $197,096 during the year ended
December 31, 1999, compared to $160,066 during 1998. The increase is made up
almost entirely of advertising and public relations.
Administrative Expense decreased to $235,553 during the year ended December
31, 1999, compared to $273,546 during 1998.
Interest expense decreased to $22,230 for the year ended December 31, 1999,
down from $31,682 during 1998.
Nortech incurred a net loss of $28,832 or $(.01) per share, for the year
ended December 31, 1999, compared to a net income of $13,538 or $.01 per
share, for the year ended December 31, 1998. Although income from operations
contributed $98,607 a one time write-off of a failed acquisition of $109,445
created the net loss for 1999.
Liquidity and Capital Resources
At December 31, 1998, Nortech had current assets of $238,907 and current
liabilities of $224,867, resulting in a working capital surplus of $14,040,
compared to current assets of $275,071 and current liabilities of $189,045,
resulting in a working capital surplus of $86,026. The increase in working
capital is primarily attributable to the sale of common stock.
Nortech's primary source of financing has been proceeds from sales of equity
and receivable financing. Nortech continues to pursue an equity infusion
from a private offering of its common stock.
During the first half of 2000, Nortech intends to raise additional capital
through private offerings or debt financing. Furthermore, Nortech believes
that, in order to achieve aggressive market penetration objectives it may be
required to raise additional capital during 2000. No assurances can be given
that Nortech will be successful in acquiring short-term or long-term
financing necessary for operations, or that such a sales program will be
successful. Failure to obtain the necessary financing will materially
adversely affect Nortech's ability to continue operations.
PLAN OF OPERATIONS
Nortech is engaged in the business of retail sales of flowers and gifts
through its twelve retail locations in the Minneapolis/St. Paul metropolitan
area, telephone sales, and e commerce sales through its Internet web site.
Nortech has recently shifted its business emphasis to retail floral sales.
Nortech has financed its operations to date through the sale of its
securities.
Nortech's plan of operations over the next 12 months to expand its retail
presence and to promote Internet sales from its e-commerce web site. This
will require the raising of additional capital, and there can be no
assurance that Nortech will be able to raise the capital required to
accomplish these goals.
The predecessor to the floral business, FL Floral, Inc. and FL Flowers,
Inc., generated $2,702,285 in net sales in the year ended December 31, 1999,
which resulted in a gross profit of $1,883,818. Management predicts that
Nortech's cash flow will be equal to or surpass these figures for the
current fiscal year. Nortech will rely on this pro forma cash flow, and
additional equity financing to satisfy its cash requirements during the next
twelve months. There can be no assurance that Nortech will be successful in
raising additional equity financing. Nortech intends to undertake a
subsequent private placement of its common stock in order to raise future
development and operating capital. Nortech depends upon capital to be
derived from future financing activities such as subsequent offerings of its
stock. Nortech anticipates no research and development costs over the next
twelve months. Nortech does not expect the purchase or sale of plant or any
significant equipment, and it does not anticipate any change in the number
of its employees. Nortech has no current material commitments, except for
its employment contracts with management.
Item 3. Description of Property
Nortech leases approximately 1,650 square feet of office space in a light
industrial complex in the Saint Paul Midway area. Nortech's current lease
expires October 30, 2001. Under the current lease, gross monthly rent is
$1,700 including utilities, janitorial service and property taxes.
Management believes Nortech's current facility, or a similar facility, can
accommodate its needs, for the foreseeable future.
Nortech leases a central production facility is located at 2509 West County
Road B, Roseville, MN 55113, consisting of 10,701 square feet of warehouse
space and 512 square feet of office space, for a 36 month term which expires
on October 31, 2001, at a monthly rental of $4,616.02. The monthly rent will
increase to $4800.66 on November 1, 2000.
Nortech owns office equipment, computer systems, and leasehold improvements
on its retail floral stores. It holds leases on each of its locations, which
are all entered into with unrelated parties, with the exception of 1822 East
Lake Street, Minneapolis, MN, which is leased to Nortech by FL Properties,
LLC, a Minnesota limited liability company beneficially owned by C.E.O.
Donald Lindstedt and president Steve Fahrner. A schedule of the leases is as
follows:
Location Term Monthly Rent
Stems and Vines on Grand Exp. 11/30/03 $1,250 plus taxes
949 Grand Avenue
St. Paul, MN 55105
JDB Florist Exp. 1/31/01 $1,525
515 Owens
Stillwater, MN 55082
Holm & Olson Month to Month $1,750 plus taxes
Carriage Hill Plaza-Holm&Olson
Lowry Medical Building
350 St. Peter Street
St. Paul, MN 55102
(1000 square feet)
Holm & Olson Expires 2000 $2,315.33 plus taxes
2100 North Snelling and 7% gross sales
Roseville, MN 55113
Rossi's Floral Shop Expires 8/31/2004 $1,255.00 plus
common area
386 West Bernard Street
West St. Paul, MN 55118
1,250 square feet
Lake Elmo Floral Month to Month $1,500
3479 Lake Elmo Blvd.
Lake Elmo, MN 55042
Northfield Floral Month to Month $2,000
640 South Water Street
Riverpark Mall
Northfield, MN 55057
Stems and Vines of
White Bear Lake Exp. 6/20/02 $1,673
1971 Whitaker Street
White Bear Lake, MN 55110
Julie's Stems and Vines on 50th Exp. 8/31/2001 $1,765 plus common
813 West 50th Street area charges
Minneapolis, MN 55419
1,253 square feet
Cedar Lake Floral Exp. 3/31/2004 $3,183 plus taxes
1822 East Lake Street
Minneapolis, MN 55419
Rosacker's Flowers and Gifts Exp. 10/31/2003 $5,462.08
2315 18th Avenue NE With option to
Minneapolis, MN 55418 triple net
6013 square feet
Valerie's Fresh Flowers Exp.12/31/00 $2,698
582 Prarie Center Drive
Eden Prarie, MN 55344
Item 4. Securities Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of the shares of Common Stock of the Company as of the end of the
fiscal year, 1998, by (I) each person who is known by the Company to be the
beneficial owner of more than five percent (5%) of the issued and
outstanding shares of common stock, (ii) each of the Company's directors and
executive officers, and (iii) all directors and executive officers as a group.
Name and Address Number of Shares Percentage Owned
---------------- ---------------- ----------------
Don Lindstedt 1,522,967 18.835%
Post Office Box 15103
Minneapolis, MN 55145
Steve Fahrner 1,522,966 18.835%
Post Office Box 15103
Minneapolis, MN 55145
Gary Borglund 100,000 1.24%
400 South 4th Street
Minneapolis, MN 55415
Calvin Blanchard 100,000 1.24%
Post Office Box 15103
Minneapolis, MN 55145
Richard Neslund 561,315 7%
15210 Wayzata Blvd.
Wayzata, MN 55391
All directors and
officers as a group 3,305,933 40.15%
_____________
Based on 8,084,354 shares outstanding as of May 24, 2000
Item 5. Directors, Executive Officers, Promoters and Control Persons
Directors are elected by the shareholders to terms of one year. Officers
serve at the pleasure of the Board of Directors, and serve one year terms
unless removed by the Board prior to their terms. On February 3, 2000,
pursuant to the share purchase agreement with FL Floral and Floral, Inc.,
the Board of Directors of Nortech appointed Don Lindstedt and Steven Fahrner
as the provisional Board of Directors, to serve until the next election.
The Executive Officers of Nortech and their ages are as follows:
Name Age Position
__________ ___ ________
Don Lindstedt 47 Director, CEO
Gary L. Borglund 52 Chairman
Steven Fahrner 47 President, Director,
Operating Officer
Calvin E. Blanchard 47 Chief Operating Officer,
Secretary, Director
Don Lindstedt. Mr. Lindstedt is the Director, and Chief Executive Officer of
Nortech since February 3, 2000. Prior to February 3, 2000, he was the Chief
Executive Officer of FL Flowers, Inc. and FL Floral, Inc., from December 1,
1998 through February 3, 2000. From 1996 through May, 1999 he was a partner
in REM Rehabilitation, a rehabilitation company, where he was Chief
Operating Officer of an $8 million four state operation with nearly 200
employees. From 1994 through 1996, he was owner and Chief Financial Officer
of Comprehension Rehabilitation, Inc. From 1995 though 1998 he was
Co-founder and owner of Infinite Health, L.L.C. From 1993 through 1995, he
was Vice President/Operations of Express Systems, Inc. From 1990 through
1993, he was General Manager for River Ridge Rehabilitation, Inc. From 1988
through 1996, he also acted as an independent business consultant, providing
management and financial consulting services, as President of CityView
Financial Services, Inc. Mr. Lindstedt holds a Bachelor of Arts degree in
Accounting from Metropolitan University, 1993.
Steve Fahrner. Mr. Fahrner is the President and Director of Nortech since
February 3, 2000. He was the President of FL Flowers, Inc. and FL Floral,
Inc., from December, 1998 through February 3, 2000. From 1997 through May,
1999, he was the head of the Physical Therapy Division of REM Rehabilitation
and the Company's clinical administrator. From 1984 through 1997, he owned
and operated Renew Rehabilitation, which he sold to his partner upon joining
REM. Mr. Fahrner holds a Bachelor of Science degree in Physical Therapy
from the University of Wisconsin, 1976.
Gary L. Borglund. Mr. Borglund is Chairman and Director of Nortech, since
February 3, 2000, and formerly served as President and Chief Executive
Officer of Nortech, from January 3, 1998 to February 3, 2000. He also serves
as President, Director and Chief Executive Officer of Global Games, Inc.,
since August 21, 1997. He also serves as a Director of Red Oak Management
Company. From 1990 through 1996, Mr. Borglund was Executive Vice President
of Northern Financial Partners, a direct mail contractor. From 1988 through
1990, he was Vice President of Sales for Greenhaven Marketing Corp., a
direct mail/insurance company. Prior to that time, Mr. Borglund was a self
employed management consultant. Mr. Borglund attended the University of
Minnesota, where he majored in Business.
Calvin E. Blanchard. Mr. Blanchard is the Chief Operating Officer and
director of Nortech, and has been since January, 1997. He served as
Nortech's Chief Operating Officer and General Manager since April 1994.
Prior to this, from 1988 to 1994, he served as a Pesticide Registration
Supervisor with the Minnesota Department of Agriculture. From 1986 to 1988,
he served as the supervisor of technical services for CENEX. Prior to this,
from 1977 through 1979, he was employed as a crop consultant with Servi-Tech
in Kansas. Mr. Blanchard created Treeguard, the original Nortech product,
and guided Nortech through its developmental stages. He graduated in 1977
from Iowa State with a double-major in Plant Pathology and Pest Management.
He received his M.S. in Entomology from Texas A&M in 1981. He received an
M.B.A. from Carlson School of Business, University of Minnesota in 1986.
Item 6. Executive Compensation
Nortech has written employment agreements with its officers. The only
non_cash compensation paid by Nortech is reflected in the following table of
shares and warrants granted to executive officers. There were no grants of
options or SAR grants given to any executive officers during the last fiscal
year.
The salaries of Nortech's officers are set forth in the table below:
Name Position Salary Bonus
Don Lindstedt CEO $87,500 0
Steve Fahrner President $87,500 0
Gary Borglund Chairman $30,000 0
Calvin Blanchard COO $87,500 0
Item 7. Certain Relationships and Related Transactions
In connection with the acquisition of the assets of FL Floral, Inc and Fl
Flowers, Inc. on February 3, 2000, Don Lindstedt was issued 1,552,967 shares
of common stock of Nortech; Steve Fahrner was issued 1,552,966 shares of
common stock, and Gary Borglund was issued 100,000 shares of common stock.
Calvin Blanchard is the founder of the Company and could be deemed to be its
promoter. Don Lindstedt and Steve Fahrner are the major controlling
shareholders of Nortech and could also be considered to be promoters. No
other persons are known to Management that would be deemed to be promoters.
There have been no other transactions since the beginning of fiscal year
1999 or any currently proposed transactions, or series of similar
transactions, to which the Company was or is to be a party, in which the
amount involved exceeds $60,000, inclusive of cash and noncash transactions,
and in which any of the officers, or directors, or holders of over 5% of the
Company's stock have or will have any direct or indirect material interest.
The Company does not currently have any policy toward entering into any
future transactions with related parties.
Item 8. Legal Proceedings
Nortech is not a party to any litigation.
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
MARKET INFORMATION
Nortech's Common Stock is traded in the over-the-counter market, and is
quoted on the NASD OTC Bulletin Board ("Bulletin Board"), under the trading
symbol "NRTC". The market for the Company's Common Stock must be
characterized as a limited market due to the relatively low trading volume
and the small number of brokerage firms trading in Nortech's Common Stock
and acting as market makers. No assurance can be given that the
over-the-counter market for Nortech's securities will continue or that the
prices in such market will be maintained at their present levels.
The NASD recently added an "E" qualifier to Nortech's symbol, making in
"NRTCE," and signifying that Nortech did not comply with the NASD's
eligibility rule. If This means that if Nortech fails to bring its financial
reports with the SEC current, its quotation on the Bulletin Board will be
dropped, and Nortech will then petition for a quotation on the pink sheets.
Nortech has recently filed its annual report on Form 10KSB, and has only to
file its quarterly report on Form 10Q for the first quarter of 2000 to be
compliant. However, there is no assurance that Nortech will accomplish this
and thus remain eligible for its quote to remain on the Bulletin Board.
The following table sets forth, for the periods indicated, certain
information with respect to the high and low bid quotations of Company's
shares of Common Stock. The quotations represent inter-dealer quotations
without
retail markups, markdowns or commissions and may not represent actual
transactions.
Bid
--------------------------
Quarter Ended High Low
------------- ----- -----
March 31, 1999 $.56 $.44
June 30, 1999 $.38 $.19
September 30, 1999 $.44 $.25
December 31, 1999 $.63 $.13
On March 1, 2000, the high bid and low asked prices for Nortech's shares
quoted on the Bulletin Board were $.69 and $.63, respectively.
As of December 31, 1999, there were 4,474,130 shares of Nortech Common Stock
issued and outstanding held by approximately 300 holders of record. This
number does not include shareholders whose shares are held of record by
brokerage houses and clearing corporations on behalf of their customers.
PENNY STOCK STATUS
Nortech's common stock is a "penny stock," as the term is defined by Rule
3a51(1)of the Securities Exchange Act of 1934. This makes it subject to
reporting, disclosure and other rules imposed on broker_dealers by the
Securities and Exchange Commission requiring brokers and dealers to do the
following in connection with transactions in penny stocks:
1. Prior to the transaction, to approve the person's account for
transactions in penny stocks by obtaining information from the person
regarding his or her financial situation, investment experience and
objectives, to reasonably determine based on that information that
transactions in penny stocks are suitable for the person, and that the
person has sufficient knowledge and experience in financial matters that the
person or his or her independent advisor reasonably may be expected to be
capable of evaluating the risks of transactions in penny stocks. In
addition, the broker or dealer must deliver to the person a written
statement setting forth the basis for the determination and advising in
highlighted format that it is unlawful for the broker or dealer to effect a
transaction in a penny stock unless the broker or dealer has received, prior
to the transaction, a written agreement from the person. Further, the broker
or dealer must receive a manually signed and dated written agreement from
the person in order to effectuate any transactions is a penny stock.
2. Prior to the transaction, the broker or dealer must disclose to the
customer the inside bid quotation for the penny stock and, if there is no
inside bid quotation or inside offer quotation, he or she must disclose the
offer price for the security transacted for a customer on a principal basis
unless exempt from doing so under the rules.
3. Prior to the transaction, the broker or dealer must disclose the
aggregate amount of compensation received or to be received by the broker or
dealer in connection with the transaction, and the aggregate amount of cash
compensation received or to be received by any associated person of the
broker dealer, other than a person whose function in solely clerical or
ministerial.
4. The broker or dealer who has effected sales of penny stock to a
customer, unless exempted by the rules, is required to send to the customer
a written statement containing the identity and number of shares or units of
each such security and the estimated market value of the security. The
imposition of these reporting and disclosure requirements on a broker or
dealer make it unlawful for the broker or dealer to effect transactions in
penny stocks on behalf of customers. Brokers or dealers may be discouraged
from dealing in penny stocks, due to the additional time, responsibility
involved, and, as a result, this may have a deleterious effect on the market
for Nortech's stock.
(1) The above quotations reflect inter-dealer prices, without retail mark up,
mark down or commission and may not represent actual transactions.
(2) Source of information: Stockmaster Stock Quotation Service
(Stockmaster.com) and Freerealtime.com, NASD Bulletin Board.
SECURITY HOLDERS
The approximate number of record holders of shares of the common stock of
Nortech outstanding as of December 31, 1999 was 300.
DIVIDENDS
No dividends have been declared or paid on Nortech's common stock, and
Nortech does not intend to pay dividends in the near future.
Item 10. Recent Sales of Unregistered Securities
Each of the following issuances by Nortech of the securities sold in the
transactions referred to below were not registered under the Securities Act
of 1933, as amended, pursuant to the exemption provided under Section 4 (2)
thereof for transactions not involving a public offering.
During 1998, Nortech completed an offshore offering of common stock for $.30
per share. Nortech issued 400,000 shares in this offering and received
subscriptions totaling $120,000. During 1999, Nortech completed an
additional offshore offering of common stock for $.50 per share. In this
offering, Nortech issued 1,350,000 shares of common stock and received
subscriptions of $675,000. All of the subscriptions are still outstanding
and accrue interest at 10%, mature on various dates, and are secured by the
underlying stock. Due to the uncertainly of collecting interest due on the
subscriptions, interest has not been accrued at December 31, 1999 and 1998.
During 1998, Nortech sold 100,000 shares of its common stock and received
proceeds of $107,460, net of issuance costs. During 1999, Nortech sold units
consisting of Nortech's common stock and warrants to purchase common stock.
Nortech issued 675,000 shares of common stock and 135,000 warrants to
purchase common stock and received proceeds of $39,960, net of issuance
costs. The warrants are exercisable for three years.
Item 11. Description of Securities
Common Stock
The Company is authorized to issue 15,000,000 shares of common Stock at a
par value of $.001. The presently outstanding shares of Common Stock are
fully paid and non-assessable. There are currently outstanding 4,474,130
shares of Common Stock.
Holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders generally. The approval of
proposals submitted to stockholders at a meeting other than for the election
of directors requires the favorable vote of a majority of the shares voting,
except in the case of certain fundamental matters (such as certain
amendments to the Articles of Incorporation, and certain mergers and
reorganizations), in which cases Delaware law and the Company's Bylaws
require the favorable vote of at least a majority of all outstanding shares.
Stockholders are entitled to receive such dividends as may be declared from
time to time by the Board of Directors out of funds legally available
therefor, and in the event of liquidation, dissolution or winding up of the
Company to share ratably in all assets remaining after payment of
liabilities. The holders of shares of Common Stock have no preemptive,
conversion, subscription or cumulative voting rights.
Under current Delaware law, a shareholder is afforded dissenters' rights
which, if properly exercised, may require the Company to purchase his
shares. Dissenters' rights commonly arise in extraordinary transactions such
as mergers, consolidations, reorganizations, substantial asset sales,
liquidating distributions, and certain amendments to the Company's
certificate of incorporation.
Item 12. Indemnification of Directors and Officers
DELAWARE STATUTES
Section 145 of the Delaware General Corporation Law, as amended, indemnifies
the Company's officers and directors and affects their liability in that
capacity, for any expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of the fact
that he is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
CERTIFICATE OF INCORPORATION AND BY-LAWS
The Company's Certificate of Incorporation provides that the directors of
the Company shall be protected from personal liability to the fullest extent
permitted by law. This provision indemnifies the Company's officers and
directors and affects their liability in that capacity, for any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
The Company's By-laws also contain a provision for the indemnification of
the Company's directors (see "Indemnification of the Company's directors
(see "Indemnification of Directors and Officers-By-Laws" below.) This
provision indemnifies the Company's officers and directors and affects their
liability in that capacity, for any expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Item 13. Financial Statements
Independent Auditor's Report dated January 11, 2000
Financial Statements
Balance Sheet
Statement of Operations
Statements of Cash Flows
Statement of Changes in Stockholder's Equity
Notes to Financial Statements
Interim Unaudited financial Statements as of March 31, 2000
Balance Sheet (unaudited)
Statement of Operations (unaudited)
Statement of Cash Flows (unaudited)
Notes to Financial Statements (unaudited)
[CAPTION]
To The Board of Directors
NORTECH FOREST TECHNOLOGIES, INC.
Minneapolis, Minnesota
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Nortech Forest Technologies,
Inc. as of December 31, 1999 and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit. The financial statements of Nortech Forest Technologies, Inc.
as of December 31, 1998, were audited by other auditors whose report dated
January 21, 1999, expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nortech Forest
Technologies, Inc. as of December 31, 1999, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
LUND KOEHLER COX & ARKEMA, LLP
---------------------------------
Lund Koehler Cox & Arkema, LLP
Minneapolis, Minnesota
January 11, 2000
NORTECH FOREST TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<S> <C>
<C>
DECEMBER 31,
-----------------------------
1999
1998
----------- -----------
ASSETS
------
Current assets:
Cash $
10,812 $ 30,874
Accounts receivable
203,992 126,014
Inventories
51,847 77,269
Prepaid expenses
8,490 4,750
----------- -----------
Total current assets
275,071 238,907
----------- -----------
Furniture and equipment, net
12,896 21,098
Other assets:
Deferred offering costs
37,500 0
Security Deposit
1,665 1,665
Total other assets
39,165 1,665
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $
100,637 $ 58,522
Line-of-credit
27,256 77,392
Accounts payable
42,625 67,659
Accrued expenses
18,527 21,294
----------- -----------
Total current liabilities
189,045 224,867
----------- -----------
Long-term debt, net of current portion
0 27,031
----------- -----------
Total liabilities
189,045 251,898
----------- -----------
Stockholders' equity:
Preferred stock, par value $.01 per share, 500,000 shares
authorized; none issued and outstanding
0 0
Common stock, par value $.01 per share, 15,000,000 shares
authorized, 4,474,130 and 2,169,130 shares issued
and outstanding
44,741 21,691
Additional paid-in capital
2,585,369 1,843,772
Subscriptions receivable
(727,500) (120,000) Accumulated deficit
(1,764,523) (1,735,691)
----------- ----------
Total stockholders' equity
138,087 9,772
----------- ----------
$
327,132 $ 261,670
=========== ===========
<FN> See Accompanying Notes to Financial Statements
</TABLE>
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<S> <C>
<C>
YEARS
ENDED DECEMBER 31,
-----------------------------
1999
1998
-----------
-----------
Sales $ 789,119
$ 712,461
Cost of sales 257,863
237,113
-----------
-----------
Gross profit 531,256
475,348
-----------
-----------
Operating expenses:
Administrative expenses 235,553
273,546
Sales and marketing 197,096
160,066
-----------
-----------
Total operating expenses 432,649
433,612
-----------
-----------
Income from operations 98,607
41,736
Other income (expense): (22,230)
(31,682)
Interest expense
Other income 4,236
3,484
Write-off of failed acquisition costs (109,445)
0
-----------
-----------
Total other income (expense) $ (127,439)
$ (28,198)
===========
===========
Net income (loss) before income taxes (28,832)
13,538
Provision for income taxes 0
0
Net income (loss) $ (28,832)
$ (13,538)
===========
===========
Basic and diluted earnings (loss) per common share $ (0.01)
$ .01
diluted earnings (loss) per common share 3,234,711
2,022,255
===========
===========
<FN> See Notes to Financial Statements
</TABLE>
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<S> <C> <C> <C>
<C> <C> <C>
COMMON STOCK
---------------- PAID-IN
UBSCRIPTION ACCUMULATED
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT
TOTAL
------ ------ ---------
----------- ---------- ---------
BALANCE, December 31, 1997 1,762,880 $ 17,629
$1,842,907 $ -- $(1,749,229) $ 111,307
Redemption of common stock 93,750 (938)
(149,062) -- -- ( 150,000)
Issuance of common stock, net of
issuance costs 500,000 5,000
149,927 (120,000) - 34,927
Net income -- -- --
-- 13,538 13,538
------ ------
--------- ----------- ----------- ---------
BALANCE, December 31, 1998 2,169,130 21,691
1,843,772 (120,000) (1,735,691) 9,772
Issuance of common stock, net
of issuance costs 2,025,000 20,250
694,710 (607,500) -- 107,460
Shares issued for services
Rendered 280,000 2,800
46,887 -- -- 49,687
Net loss -- -- --
-- (28,832) (28,832)
------ ------
--------- ----------- ----------- -----------
BALANCE, December 31, 1999 4,474,130 $ 44,741 $
2,585,369 $(727,500) $(1,764,523) $ 138,087
========= ========
========= =========== =========== ===========
<FN> See accompanying notes to
financial statements
</TABLE>
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash
<TABLE>
<S> <C>
<C>
YEARS
ENDED DECEMBER 31,
-------------------------
1999 1998
--------- ---------
Cash flows from operating activities:
Net income (loss)
$(28,832) $(13,538)
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Depreciation
9,807 10,846
Issuance of common stock for services rendered
12,187 0
Issuance of notes payable for services rendered
0 7,500
Changes in operating assets and liabilities:
Accounts receivable
(77,908) 89,405
Inventories
25,422 3,755
Prepaid expenses
(3,740) 606
Other assets
0 3,484
Accounts payable
(25,034) (3,188)
Accrued expenses
2,676 2,138
Cash flows from operating activities
(90,865) (128,084)
--------- ---------
Cash flows from investing activities:
Purchase of furniture and equipment
(1,605) 0
Net cash flows from investing activities
(1,605) 0
--------- ---------
Cash flows from financing activities:
Net increase (decrease in lien of credit
42,115 (93,358)
Payments of long-term debt
(77,167) (53,077)
Proceeds from issuance of common stock, net
of issuance costs
(107,460) 34,927
--------- ---------
Cash flows from financing activities
72,408 (111,508)
-------- ---------
Increase (decrease in cash
(20,062) 16,576
Cash, beginning of year
30,874 14,298
Cash, beginning of year $
10,812 $ 30,874
========= =========
Supplemental cash flows information:
Cash paid for interest $
22,829 $ 30,910
Cash paid for income taxes
0 0
Non-cash investing and financing activities:
Stock subscriptions receivable received from
issuance of common stock, net of issuance costs $
607,500 $ 120,000
Issuance of common stock for deferred offering costs $
37,500 $ 0
Redemption of common stock and reimbursement for
services rendered through issuance of common stock $
0 $ 157,500
========= =========
<FN> See accompanying notes to financial statements
</TABLE>
<PAGE>F-5
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business-
Nortech Forest Technologies, Inc. (Nortech), manufacturers and markets Tree
Guard(R) brand deer repellent and is engaged in the development of
products designed to protect plants, trees and landscaping from damage by
animals and certain acts of nature.
In addition to Tree Guard(R), the Company sells a deer repellent to
Voluntary Purchasing Groups (VPG) of Bonham, Texas, and Grant Laboratories
of San Leandro, California, under private label agreements. Under these
agreements, the Tree Guard(R) formulation is sold in bulk, tanker
truckloads, for repacking under the Ferti-lome "This 1 Works" brand name
owned by VPG and "Grants Deer Repellent" brand name owned by Grant
Laboratories (see note 9)
Accounts receivable - The Company considers all accounts receivable to be
fully collectible, accordingly, no allowance for uncollectible accounts has
been established. If accounts became uncollectible, they are charged to
operations when that determination is made. The Company extends unsecured
credit to customers in the normal course of business.
Inventories - Inventories are recorded at the lower of cost (first-in, first
out) or market value.
Depreciation - Property and equipment are recorded at cost. Depreciation is
provided for using straight-line method over periods ranging from three to
seven years. Maintenance, repairs and minor renewals are expensed when
incurred.
Advertising costs - Advertising costs are charged to expense as incurred.
Advertising expense for the years ended December 31, 1999 and 1998 was
$59,877 and $27,557.
Earnings per common share - During 1999, the Company adopted Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (Statement 128).
Statement 128 requires disclosures of basic earnings (loss) per share (EPS)
and diluted EPS. Basic EPS is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the
year. Diluted EPS is computed by dividing net income by the weighted
average common shares outstanding and dilutive common equivalent shares
assumed to be outstanding during each period. Dilutive common stock
equivalents are not included in computations of diluted EPS if their
inclusion would be antidilutive. Antidilutive common equivalent shares
issuable based on future exercise of stock options and warrants could
potentially dilute EPS in future years.
Management's use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of
<PAGE>F-6
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair value of financial instruments - The carrying amounts for all financial
instruments approximates fair value. The carrying amounts for cash,
accounts receivable, accounts payable and accrued expenses approximate fair
value because of the short maturity of these instruments. The fair value of
debt approximates the current rates at which the Company could borrow funds
with similar remaining maturities.
Reclassifications - Certain accounts in the prior year financial statements
have been reclassified for comparative purposes to conform with the
presentation in the current year financial statements. These
reclassifications had no effect on net income or stockholders' equity.
(2) INVENTORIES
Inventories consisted of the following at December 31:
1999 1998
-----------------------
Raw materials $ 37,123 $ 55,638
Finished goods 14,724 21,631
-----------------------
Total inventories $ 51,847 $ 77,269
-----------------------
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
1999 1998
-----------------------
Furniture and fixtures $ 33,356 $ 33,356
Office equipment 24,288 22,683
Warehouse equipment 6,639 6,639
Less: accumulated depreciation (51,387) (41,580)
-----------------------
Total property and equipment $ 12,896 $ 21,098
-----------------------
(4) LINE OF CREDIT
The Company has a $200,000 revolving line of credit with Itasca Business
Credit, LLC, which is due on demand. The Company can obtain advances of up
to 75% of accounts receivable to a maximum of $200,000. Borrowings under
the revolving line of credit bear interest at prime plus 9% (17.5% at
December 31, 1999) and are secured by substantially all of the Company's
assets. Outstanding Borrowings were $100,637 and $58,522 at December 31,
1999 and 1998.
<PAGE>F-7
(5) LONG-TERM DEBT
Long-term debt consists of a note payable issued to a former employee as
part of a lawsuit settlement. The note is payable in monthly installments of
$7,000, bears interest at 9.5%, matures in 2000 and is secured substantially
all of the Company's assets. The outstanding balance was $27,256 and
$104,423 at December 31, 1999 and 1998.
(6) INCOME TAXES
The Company has incurred net operating losses for both financial reporting
and income tax purposes. As of December 31, 1999, the Company had net
operating loss carryforwards of approximately $1,763,000, which, if not
used, will begin to expire in 2007. Future changes in the ownership of the
Company may place limitations on the use of these net operating loss
carryforwards. The Company has recorded a full valuation allowance against
the net deferred tax asset due to the uncertainty of realizing the related
benefits.
1999 1998
--------- ---------
Net operating loss carryforwards $ 705,000 $ 684,400
Less: valuation allowance (705,000) (684,400)
--------- ---------
Net deferred taxes $ 0 $ 0
(7) STOCKHOLDER'S EQUITY
Regulation S offerings-During 1998, the Company completed an offering of
common stock for $.30 a share. The Company issued 400,000 shares of common
stock and received stock subscription agreements totaling $120,000. During
1999, the Company completed an additional offering of common stock for $.50
a share. The Company issued 1,350,000 shares of common stock and received
stock subscription agreements totaling $675,000 and incurred $67,500 of
issuance costs. These costs will be paid as proceeds from collection of the
stock subscriptions are received. All of the outstanding stock subscription
agreements accrue interest at 10%, mature at various dates through July 2000
and are secured by the underlying common stock. Due to the uncertainty of
collecting interest on the notes, interest has not been accrued at December
31, 1999 and 1998.
Sales of common stock-During 1998, the Company sold 100,000 shares of its
common stock and received proceeds of $34,927, net of issuance costs. During
1999, the Company sold units consisting of the Company's common stock and
warrants to purchase common stock. The Company issued 675,000 shares of
common stock and 135,000 warrants to purchase stock at $.80 per share and
received proceeds of $107,460, net of issuance costs. The warrants are
exercisable for three years.
<PAGE>F-7
Stock warrants-Outstanding stock warrants consisted of the following:
<TABLE>
<S> <C>
<C>
Number of
Per share
Warrants
Price
-----------
-----------
Outstanding-December 31, 1997 249,088
$1.50-$4.00
Granted 0
.00
Canceled or expired (50,000)
1.00
-----------
------------
Outstanding-December 31, 1998 199,088
$1.50-$4.00
Granted 135,000
.80
Canceled or expired (100,000)
1.30
-----------
------------
Outstanding-December 31, 1999 234,088
$ .80-$4.00
</TABLE>
Stock option plan - The Company has a qualified stock option plan, which
authorizes a maximum of 200,000 shares of common stock for issuance under
the plan. The Board of Directors may grant options at their discretion,
provided the purchase price of the option equals the market price of the
Company's stock on the date of the grant. In addition, the Company has
nonqualified stock option plan that allows for issuance of 200,000 shares of
common stock under the plan under terms outlined in the agreement. The
options under both plans are exercisable for a period of ten years from the
date of grant and vest over various periods.
Information regarding the Company's stock options is summarized below:
<TABLE>
<S> <C> <C>
<C>
Weighted
Range of
Number of Average
Option
Options Exercise Price
Exercise Price
-----------------------------------------------
Options outstanding - December 31, 1997 153,938 $ 1.60
$ 1.50-4.00
Granted 75,000 1.60
1.60
Canceled or expired (2,500) 1.00
1.00
Exercised 0
---------- ----------
------------
Options outstanding - December 31, 1998 226,438 1.61
1.50-4.00
Granted 0 -
-
Canceled or expired 0 -
-
Exercised 0 -
-
---------- ----------
------------
Options outstanding - December 31, 1999 226,438 1.61
1.50-4.00
---------- ----------
------------
Options exercisable - December 31, 1999 226,438 1.61
1.50-4.00
Weighted average fair value of options granted
during the year ended December 31, 1999. $ .00
</TABLE>
<PAGE>F-8
Options outstanding at December 31, 1999 have a weighted average remaining
contractual life of 7.56 years.
The Company applies APB Opinion 25 "Accounting for Stock Issued to
Employees" and related Interpretations in accounting for its stock options.
Accordingly, no compensation cost has been recognized for its stock options.
Had compensation cost for the Company's stock options been determined based
on the fair value at the grant dates consistent with the method of Statement
of Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation" (Statement 123), the Company's net income (loss) and EPS would
not have changed.
In determining the compensation cost of the options granted during 1998, as
specified by Statement 123, the fair value of each option grant has been
estimated on the date of grant using the Black-Scholes option pricing model
and the weighted average assumptions used in these calculations are
summarized below:
Risk free interest rate 6.50%
Expected life of the options granted 10 years
Expected volatility of options granted 25%
Expected dividend yield 0.00%
(8) COMMITMENTS AND CONTINGENCIES
Operating leases - The Company leases office space under a lease
expiring October 2001. Base rent is $1,700 per month, increasing to $1,734
during the term of the lease. In addition, the lease requires the Company
to pay its pro rata share of real estate taxes. Rent expense was $20,770
and $24,000 for the years ended December 31, 1999 and 1998.
Future minimum rental payments are as follows for the years ending December 31:
2000 $ 20,465
2001 17,344
---- ------
Total $ 37,809
Major customers - The Company had sales to two customers representing
approximately 26% of total sales for the year ended December 31, 1998. The
Company had accounts receivable from five customers representing
approximately 66% of total accounts receivable at December 31, 1999 and
accounts receivable from four customers representing approximately 76% of
total accounts receivable at December 31, 1998.
Employment agreement - The Company has an employment agreement with one of
its officers. The agreement requires minimum annual compensation of $65,000
through December 2000.
(9) SUBSEQUENT EVENTS (UNAUDITED)
Sale of Tree Guard(R) Assets - On February 3, 2000, the Company sold all of
the assets, net of certain liabilities associates with its Tree Guard brand
deer repellant, including accounts receivable, inventories and certain
prepaid expenses for $850,000.
<PAGE>F-9
Acquisition of FL Floral, Inc. and FL Flowers, Inc. - On February 4, 2000,
the Company acquired 100% of the outstanding stock of FL Floral, Inc. and FL
Flowers, Inc. The Company issued 3,206,245 shares of common stock for these
acquisitions. The purchase agreement contains stock incentives based on
future sales up to a maximum of 6,412,474 shares of common stock. In
conjunction with the purchase, the Company entered into employment
agreements with the two previous owners of the Fl Floral, Inc. and FL
Flowers, Inc. and a current officer of the Company. The agreements require
annual compensation ranging between $36,000 and $87,500 expiring through
December 2002.
<PAGE>F-10
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The former accountant, Stirtz, Bernards, Boyden,Surdel & Larter, did not
resign, or decline to stand for re election. It was dismissed by the Company
in June, 1999. The decision to change accountants was approved by the
Board of Directors. There were no disagreements with the former accountant
on any matter
of accounting principle, or practice, financial statements disclosure or
auditing scope or procedure. The former accountant has indicated its
agreement with the statements made by the Company concerning the change in
the Company's independent accountant. The Company has fully authorized the
former accountant to respond fully to the inquiries of the successor
accountant concerning all of the Company's financial reports and audits. The
new accountant, Lund Koehler Cox & Arkema LLP was engaged in June, 1999.
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
BALANCE SHEETS
March 31, 2000(unaudited) and December 31, 1999
<TABLE>
<S> <C>
<C>
December
31, March 31,
1999
2000
----------- ----------
ASSETS
------
Current assets:
Cash $
10,812 $ 403,043
Accounts receivable
203,992 317,545
Inventories
51,847 284,000
Prepaid expenses
8,490 27,025
----------- -----------
Total current assets
275,071 1,031,613
----------- -----------
Property and equipment
Furniture and equipment, net
12,896 549,444
----------- -----------
Total property and equipment
12,896 549,444
Other assets:
Deferred offering costs
37,500 0
Goodwill
0 333,655
Security Deposit/Start up costs
1,665 77,957
----------- -----------
Total other assets
39,165 411,612
Total Assets $
327,132
$ 1,992,669
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $
100,637 $ 0
Line-of-credit
27,256 0
Accounts payable
42,625 418,380
Taxes payable
0 16,318
Accrued wages
0 48,640
Accrued expenses
18,527 47,395
----------- -----------
Total current liabilities
189,045 530,733
----------- -----------
Long-term debt, net of current portion
0 823,648
----------- -----------
Total liabilities
189,045 1,354,381
----------- -----------
Stockholders' equity:
Preferred stock, par value $.01 per share, 500,000 shares
authorized; none issued and outstanding
0 0
Common stock, par value $.01 per share, 15,000,000 shares
authorized, 4,474,130 shares issued
and outstanding
44,741 244,741
Additional paid-in capital
2,585,369 2,585,369
Subscriptions receivable
(727,500) ( 765,000) Accumulated deficit
(1,764,523) (1,849,142)
Net income
0 422,320
----------- ----------
Total stockholders' equity
138,087 638,288
----------- -----------
Total liabilities and equity $
327,132 $1,992,669
=========== ===========
</TABLE>
<PAGE>F-2
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>************
<S> <C>
<C>
March 31,
March 31,
1999
2000
-----------
-----------
Sales $ 164,856
$ 918,704
Cost of sales 67,646
324,050
-----------
-----------
Gross profit 97,210
594,654
-----------
-----------
Operating expenses:
Administrative expenses 57,118
706,833
Sales and marketing 42,765
114,653
-----------
-----------
Total operating expenses 99,883
821,486
-----------
-----------
Income from operations (2,673)
(226,832)
Other income (expense):
Interest expense (7,059)
(21,264)
Interest income 94
0
Other income 0
7,142
Sale of Tree Guard assets
749,488
Marketing - Mall of America
(21,251)
Depreciation
(25,591)
Prior year adjustments (39,370)
-----------
-----------
Total other income (expense) $ (7,153)
$ 649,154
===========
===========
Net income (loss) before income taxes (9,638)
422,322
Provision for income taxes 0
0
Net income (loss) $ ( 9,638)
$ 422,322
===========
===========
Basic and diluted earnings (loss) per common share $ (0.01)
$ .05
===========
===========
Outstanding shares of common stock 4,474,130
8,084,354
<PAGE>F-3
</TABLE>
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31, 1999 AND 2000
<TABLE>
<S>
<C> <C>
March 31
-------------------------
1999 2000
--------- ---------
Cash flows from operating activities:
Net income (loss) $(
9,638) $422,322
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Depreciation
2,432 39,370
Changes in operating assets and liabilities:
Accounts receivable
(6,686) 403,043
Inventories
23,263 284,000
Prepaid expenses
0 27,025
Other assets
39,165 411,612
Accounts payable
(9,932) 418,380
Accrued expenses
(2,475) 47,395
------- ------------
Cash flows from operating activities (
920) 1,169,133
--------- ------------
Cash flows from investing activities:
Purchase of furniture and equipment
0 0
Net cash flows from investing activities
0 0
--------- ------------
Cash flows from financing activities:
Net increase (decrease) in line of credit
6,152 0
Payments of long-term debt
0 0
--------- ------------
Cash flows from financing activities
6,152 0
--------- ------------
Net increase (decrease) in cash
(12,393)
Cash, beginning of period
30,874 10,812
Cash, end of period $
10,812 $ 30,874
========= =========
Supplemental cash flows information:
</TABLE>
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD ENDED MARCH 31, 2000
1. CONDENSED FINANCIAL STATEMENTS
The financial statements included herein have been prepared by Nortech
Forest Technologies, Inc., without audit, pursuant to the rules and
regulations of the Securities Exchange Commission. Certain information and
note disclosures normally included in financial statements have been
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
financial statements be read in conjunction with the December 31, 1999
audited financial statements and the accompanying notes thereto.
Management of Nortech Forest Technologies, Inc. believes that the
accompanying financial statements contain all adjustments necessary to
present fairly the operations and cash flows for the periods presented.
2. SALE OF TREE GUARD ASSETS AND ACQUISITION OF FLORAL BUSINESS ASSETS
Sale of Tree Guard(R) Assets - On February 3, 2000, the Company sold all of
the assets, net of certain liabilities associates with its Tree Guard brand
deer repellant, including accounts receivable, inventories and certain
prepaid expenses for $850,000.
Acquisition of FL Floral, Inc. and FL Flowers, Inc. - On February 4, 2000,
the Company acquired 100% of the outstanding stock of FL Floral, Inc. and FL
Flowers, Inc. The Company issued 3,206,245 shares of common stock for these
acquisitions. The purchase agreement contains stock incentives based on
future sales up to a maximum of 6,412,474 shares of common stock. In
conjunction with the purchase, the Company entered into employment
agreements with the two previous owners of the Fl Floral, Inc. and FL
Flowers, Inc. and a current officer of the Company. The agreements require
annual compensation ranging between $36,000 and $87,500 expiring through
December 2002.
Item 15. Exhibits, Financial Statements
(a)Report of Independent Certified Public Accountant dated January 11, 2000
Financial Statements
Balance Sheets
Statement of Loss And Accumulated Deficit
Statements of Stockholder's Equity
Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) Reports on Form 8-K
March 31, 2000
April 13, 2000 (amended)
(c) Exhibits
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Nortech Forest Technologies, Inc.
DON LINDSTEDT
By________________________________________
DON LINDSTEDT, C.E.O. and Director
Date: May 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
------------------- ------ ----
Don Lindstedt CEO, Director May 30, 2000
Steve Fahrner President, Director May 30, 2000
Gary Borglund Chairman, Director May 30, 2000
Calvin E. Blanchard COO, Director May 30, 2000
[CAPTION]
NORTECH FOREST TECHNOLOGIES, INC.
EXHIBIT INDEX TO FORM 10-SB
<TABLE>
<S> <C>
<c
PAGE
NUMBER IN SEQUENTIALLY
NUMBERED
FORM 10-KSB OR
ITEM NO. ITEM
INCORPORATION BY REFERENCE TO
-------- ----
-----------------------------
3.1 Certificate of Incorporation of the Exhibit 3.1
to Nortech's Form
Company, as amended 10-KSB for
the fiscal year ended
12/31/95
3.2 Bylaws of Nortech, as amended Exhibit 3-2
to Nortech's Form
10-KSB for
the fiscal year ended
12/31/93
10.1* 1995-1996 Incentive Stock Option Exhibit
10-1 to Nortech's Form
Plan and form of Agreement 10-KSB for
the fiscal year ended 12/31/95
10.2* 1995-1996 Nonqualified Stock Exhibit
10-2 to Nortech's Form
Option Plan and form of Agreement 10-KSB for
the fiscal year ended 12/31/95
10.3* Employment Agreement dated 1/2/98 Exhibit
10.3 to Nortech's Form
with Calvin E. Blanchard 10-KSB for
the fiscal year ended 12/31/95
10.4 Toll Manufacturing and Packaging Exhibit
10-3 to Nortech's Form
Agreement with Dyno Polymers 10-KSB for
the fiscal year ended
12/31/94
Minnesota Incorporated dated 4/5/94
10.5 Security Agreement dated 7/30/97
----
between Nortech Forest Technologies, Inc.
and Itasca Business Credit
10.6 Security Agreement dated 3/6/98
----
between Nortech Forest Technologies, Inc.
and Samuel D. Garst
10.7 Repackaging Agreement dated 7/3/96 with Voluntary
----
Purchasing Groups (VPG)
10.8** Distribution/Repackaging Agreement dated 8/1/96
----
with LESCO, Inc.
10.9 Technology Licensing Agreement dated 11/1/96 with
----
Macfarlan Smith Ltd.
10.10** Supply Agreement dated 11/1/96 with Macfarlan
----
Smith Ltd.
10.11 Investment Agreement dated 10/9/96 with Richard
----
Neslund
10.12 Employment agreement of Don Lindstedt
dated Janaury 1, 2000
Exhibit 1 to Form 8-K
Filed April 13, 2000
10.13 Employment agreement of Steven Fahrner dated January 1, 2000
Exhibit 2 to Form 8-K
Filed April 13, 2000
10.14 Employment agreement of Gary Borglund dated February 3, 2000
Exhibit 3 to Form 8-K
Filed April 13, 2000
16 Letter on change in certifying accountant
(To be filed within 10 business days of the filing of this report)
27 Financial Data Schedule (filed with electronic version
----
only)
--------------------
* Management agreement or compensatory plan or arrangement.
** Confidential Treatment has been requested on certain information pertaining
</TABLE>
